SLUMP IN WORLD TRADE

Hokitika Guardian, 3 July 1931, Page 5

SLUMP IN WORLD TRADE

STUDY OF CAUSES.

ADDRESS BY PROFESSOR TOOKER.

“If some stimulus could be given to confidence, a revival might be begun and every effect of such a movement would bo cumulative in promoting recovery. There are not very many signs of recovery yet, but there are somo signs,” said Professor A. H. Tocker when lecturing to the Canterbury Philosophic Institute at Christchurch on Wednesday evening, on “The Present Industrial Depression.” There was a good attendance of members, Mr 11. 0. Page presiding. f

“At the present time.” said Prolessor Tocker, “practically the whole of the modern business world is suffering severe depression. The depression forms one. of the outstanding subjects of discussion throughout the whole of America, over most of Europe, in the industrialised countries of Asia and; in Australia, and Nevv Zealand. Its effects are seen in most of these countries in w-despread unemployment,, decreased trade and production, * low prices, wide disparity between agricultural prices and those for manufactured goods, and in political difficulties, which in some cases have led to revolutions. The depression is certainly the severest the world has felt since 1921. For New Zealand and Australia, its effects have been compared with the conditions which obtained in the early ‘9o’.s of laist century.

“Such depressions are, however, by no means new; they have been occurring at irregular intervals for more than a century. Alternations of' good and bad times probably go back as far as history and were due in earliest times to such, causes as failure of crops, good and bad seasons and wars, but it has come to be recognised that definite alternations of prosperity are a feature of modern complex business' organisation.

“During last century most attention was devoted to the financial prices which occurred when a period of high prosperity broke and gave way to depression and when panics often resulted. The latest such panic occurred with, the failure of the Knickerbocker Trust about 1907, and it was followed' by a depression which was felt over most of the world. The panic stage, however, was due mainly.to a short but pronounced monetary stringency. This stage has been largely overcome by the effects of combined hanking operation and easy credit conditions during the critical stage. ECONOMIC THEORIES.

“Early economic, theory, recognising generally the broad facts of successive booms and slumps, found various explanations of a general nature, most of which held some truth, hut none of which accounted for the whole of the cycle. “The modern approach is more' scientific. It seeks to find out exactly what 1 happens and what has happened before explaining why it has happened. It wants to know what are the exact facts of business cycles and how do such cycles run their course before suggesting any comprehensive causes to explain them, This new approach has led to much more accurate knowledge of the nature of business cycles. A wide variety of business records is now assembled, tested, worked over, compared, combined and presented in graphical form to show the general trend of business conditions. Figures are collected from records of banking, trade, or prices, production, employment, investment, building' and money rates. From these an attempt is made> to remove regular and noncyclical influences in order that the cyclical effects may he as far as possible isolated. Comparisons of different series are then made and correlation between series is sought. It is found that, such series vary considerably both in the time of change and in the extent of variation. In some cases synchronous series have been groupeef. At Harvard University, where much of this work has bpen done, a graph is published showing curves of speculation. business conditions and money rates which in the past have varied more or less regularly in that order. From the analysis of such records end graphs some measures or success has been obtained in forecasting changes in business conditions., “Greater value lies in the fuller analysis of the ovcle that has been made available. It is now generally agreed that practically every cycle passes through four stages of depression, revival, prosperity and recession; and that each stage involves processes of adjustment which carry the cycle on to the next stage. The cycles are. however, very dissimilar. No general explanation of the cycle has been advanced. Tfie aim of cycling] study i.s now to present the facts with the cycles, to analyse them, to forecast early probable changes and, by the dissemination of more accurate knowledge of business conditions, to prevent mistakes and so to mitigate the extent of business fluctuations. THE PRESENT DEPRESSION. “The present depression is perhaps best dated from the stock exchange collapse which occurred in the latter half of 1929. Prior to that collapse there had been a slow but general upward Trend of world prices, but the collapse was succeeded by a fall in prices which was particularly heavy in the case of raw materials. It is difficult to say how far prices fell, because the movements oi the index numbers depend largely on the items covered by the particular index. But in Italy, Holland and Britain, wholesale price indexes dropped between 1928 and the l

beginnings of 1931 by from 25 to 33 per cent., while jn most other countries the drop recorded was about 20 to 25 per cent. In the case of New ' Zealand export prices the fall from 1928 to the beginning of 1931 was 43 per cent. Industrial shares fell very heavily. Theso falls in prices were accompanied, by heavy reductions in trade, production and employment. . "Many and various causes have been suggested for this depression. There may be some truth in all of them, but the depression is probably due to a whole set of complex conditions which are largely the result of the war and the changes that have occurred in 'the last ten years. During that period there has been a considerable boom in construction in northern Europe, financed partly by borrowing from the . U.S.A. The construction boom was practically over and borrowing > .had been modified. There has been considerable rationalisation of industry leading to cheaper and larger production, while aga-in competition in international markets tended to reduce prices. On the other hand, costs in many countries were high and inelastic and some carried very heavy burdens of debt and taxation as the result of the war. , v; T ‘ ; AMERICAN CHEAP MONEY. “In the United Slates a policy of cheap money was adopted in 1927 with the idea of assisting Europe to adjust herself to restorations of the gold standard. This was one of the causes of the stock exchange boom which developed in 1928-29. An attempt to tighten money with a view to lessening stock speculation led to high interest rates in the U.'S.A,, but failed to control speculation, which was financed partly by a heavy flow of money attracted from Europe by the high rates ruling, There was probably everywhere a considerable transfer of funds from ordinary commercial employment to purely ' 'fife* ancial purposes. Meanwhile, favourable industrial conditions brought about by instalment buying by the great increase in mass production and by the maintenance of favourable prices through produce pools, led to over-pro-duction of certain commodities.. It was difficult to market‘these, externally on account of tariff barriers and. heavy supplies had to he-held. Then the long Stock Exchange boom broke. There .was a heayy - demands' for funds to liquidate 'credit and-'a “strong 1 ' tendency for credit 'to beoome frozen. Moire money was perhaps drawn from commerce into fifikneial' circUlAtio'n, ‘ arid ■the supplies of produce on,the one side the shortage, of money available for commerical purposes on the other, , precipitated the heavy fall in produce prices. SIGNS OF . REVIVAL.

“At the present time there is abundant money jn existence to' finance normal production and trade throughout . the world at levels of prices v consider.-! ably higher than' those .at present obtaining. Prices generally ( have been aptly described as bumping on the bottom. Signs of revival 'have been anxiously looked for in many countries, .and some are- to- be found in recent l"expansions of the volume of mining and manufacture, in several countries, Many authorities agree that the main trouble at present is a very. low level of con* ifldenee in business - prospects. If stupe stimulus could be given, to confidence a movement towards revival, might ha begun and every effort of such movement would again be cumulative in pro, moting recovery. It is probable that the recent proposal for a moratorium on reparations and allied debts made by the President of the United States aims at providing such stimulus. It is too early yef to say how far it will be successful, but the reports of tne stimulating effects on the stock exchanges of the world are very promising.’’

The speaker illustrated many of his points with slides of graphs marking fluctuations. He answered' several questions, and was accorded a- 'vote of thanks for his address.