Manawatu Herald THURSDAY, NOVEMB, 10, 1921. HOW THE WORLD SLUMP STARTED.

Manawatu Herald, Volume XLIII, Issue 2353, 10 November 1921, Page 2

Manawatu Herald THURSDAY, NOVEMB, 10, 1921. HOW THE WORLD SLUMP STARTED.

MR. J. M. KEYNES writes in the Sunday. Times:—“lf we look back eighteen months jt is obvious bow greatly the troubles of traders have been due not so much to the intrinsic situation as to grave miscalculations about it. The crisis commenced not in Europe, but in Japan. Thence il spread to the United States; next to England; and last of all to Continental Europe, which lias not at any time experienced its full severity. Big business in England was not basing its plans in the spring of 1920 on the expectation of doing a large trade with Turkey, Russia, and Central Europe—although this particular miscalculation may have played a rather larger part in the United Stales, where the banks have developed intelligence departments which make a special point of keeping (heir clients misinformed about European conditions. What upset British, business was the sudden drying up to the overseas markets, India, China, Australia, South Africa, and ' South America; and it was the collapse of the exchanges between London and many of these centres, rather than of those between London and Europe, which threw out the calculations of the business world. The miscalculations of merchants, which lead to the alternation of boom and depression, are a very expensive form of error. But the consequences can be moderated by a wise policy on the part of the banking authorities of the world. When the merchants are elated by a rise of prices and over-order, it is desirable to damp down their ill-judged enthusiasm. This is best ellected by a drastic increase in the Bank rate. As soon as a boom appears to be in progress, rates for money should be raised at once. But when merchants are depressed by falling prim's and are bringing trade to a standstill by their failure to place new orders, then they should receive all the encouragement which cheap money can give them. In Ihe first, phase, borrowers are overvaluing goods as against money; in the second phase, they are undervaluing them; and both errors should be corrected by the Bank rate so far as may be. In the past two years the banking authorities of England and the United States have been inlluetieed by correct principles, but they have acted too slowly and too late. They were too slow in putting money rates up, and now they have been too slow in putting them down again. A great deal of wreckage might have been avoided if (he Federal Reserve Board and the Bank of England had raised their values six months earlier and more sharply."