COMMODITY PRICES

Nelson Evening Mail, Volume LXIV, 8 January 1931, Page 3

COMMODITY PRICES

WHEN WILL THEY RECOVER ?

A WORLD-WIDE PROBLEM CAUSES ANALYSED AND DISCUSSED A LACK OF CONFIDENCE {By T.C.L.) LONDON. 17tli November. Producers of raw materials llie world over are now receiving prices very little better than ruled before the war, but they have to pay for their requirements and services anything up to fifty per cent .more. The rapid fall in commodity prices is largely responsible for the trade depression which has overtaken the world, and in itself accentuates the decline in prices. But even at the low prices obtaining for all the staples, the demand for them is by no means strong, as instance the case of butter, which is at the lowest level it lias been since 1.914, yet is not commanding a ready sale. ihe fact is the whole economic system is out of joint, and the questions everyone here is asking: Have we reached rock bottom yet? And. when can an improvement be expected? I bey are questions which even the most experienced economists and Jjjanciers hesitate to answer, for they know how far astray have been their previous predictions. The fact is that the times the world are passing through are almost unprecedented. The nearest approach to them was in the nineties, when some of the big banking institutions here and m Australia crashed, bringing down, with them tens of thousands of firms and private people. The British and colonial banks profited by their hitter experience and the Governments saw to it that greater safeguards of the public in to i - ests were provided. Therefore to-day there is no risk,of our banking system proving unequal to the strain, however severe, it may become. The only inconvenience the banks may experience is through the accumulation ot more money than they can secure profitable employment for. To day there is plenty of money available lor gilt-edged securities, so much indeed that the price is definitely coining down. Less than a year ago one of England’s greatest financiers prophesied that never again in the present generation would money ho lower than five per cent., yet to-day corporations in England are borrowing on the London market at 41 per cent, net. THE WORLD’S MALADIES The world is suffering from both over production and under consumption. During the war period industry was concentrated on the production of war goods that were soon destroyed. Plants were brought- up-to-date and enlarged, hence after the war industry was in a better position than ever to produce goods of which there was such a shortage throughout the world. Everybody was busy, credit, and money was abundant, wages and prices rose. There was ail increased demand for raw materials and foodstuffs. In this New Zealand and Australia largely shared. U looked as if the world was in for an era of unparalleled prosperity. But the demand was not maintained.

There was over production. The movement was accelerated by technical advances in mining and metallurgy generally, agriculture and manufacture, which had the effect of cheapening production and increasing supplies. Mass production was extended in several directions, principally in motor car manufacture, and prices were substantially reduced.

Confronted with the slackness and decrease in consumption, industry developed the hire purchase system, which had tlie desired effect—for a time, until the consumers had become loaded with obligations. STOCK EXCHANGE CRISIS Concurrently the price of securities was forced up by manipulators on the principal stock exchanges, and a coiidi fioii. of speculation created that. contained within itself seeds of disruption. This orgy of speculation was not confined to tlie' stock exchanges. It existed every where, and led to much extravagance in living. The old virtues of industry and thrift were completely disregarded. The first break came as a result of the events in Wall Street, followed by the sensational exposure of the Hatry frauds in London. The unstable pyramid erected as a result of jerrymandering toppled over, bringing with it ruination to tens of thousands. Emit was the indirect damage which was the greatest. Legitimate industry found its credit reduced or withdrawn entirely, and this led lo reduction of staff wd an increase in unemployment. The London hanks were hard hit by the Hatiy frauds, harder than they have ever publicly admitted, and, incidentally, the knowledge that such an unscrupulous financier could obtain almost unlimitec accommodation when industry and trade were languishing for lack of it lias not tended to enhance the reputation of the Big Banking Five in the minds of tlie English business community. Without industry, of course, the hanks could not exist- for ion'g, for it is industry tha* creates wealth, not the banks which merely are the custodians and distiibu*' tors of it when created. THE TARIFF WAR The economic situation has also been greatly affected by the building of tariff walls, especially by the United States, which seeks to trade with the rest ol liie world, hut will not take anything hut gold in return for its goods. How the action of one country affects the whole is shown by that of the United States, which puts on prohibitive duties on Canadian products. Canada, in turn, in order to help her farmers, hard hit by their neighbours’ tariff, imposes a prohibitive duty on New Zealand butter and New Zealand retaliates by doubling the duties on Canadian manufactures. This kind of thing is also happening ill Europe, where the hand ol nearly every country is turned against its neighbour. It’s xvar on as large a scale, and of as fierce a chaiacter, as it was in 1914-18, only it s economic war. , . , ~ The high taxation, necessitated by tlie xvar, is another factor making for economic difficulty. In England it is crushing in weight, and the people are gleaning under it. Big estates are terribly hard hit, and before long they must be a tiling of the past. The Socialists will have no regrets. This kind of confiscation of property is easier than any other and no less effective. It says much Tor the patriotism of the people that they have submitted for so long to the exactions. and have not (led with the residue of their capital to more hospitable shores.

THE WEIGHT OF TAXATION

Just what taxation means to Lntish iiidustrv can best be realised by the recent statement of one of its most prominent economists. Ho said that conioared with Germany, which cleared ott its. huge internal war debt by wateiing its currency, France, which depreciated the franc from 25 to the £ to 123 to the £, and ttie United States, which has no internal debt worth mentioning, English manufacture and commerce are loaded with a charge of 6s m the £. In other words, this is the price British industry has to pay for Britain honouring its'bond and paying 20s in the £. No wonder, therefore, foreign products ure able to undercut British in many of the markets of the world and in the free markets of Great Britain itself. It is a terrible handicap. There are other factors making for the present difficult economic situation confronting the world. Russia, with its tens of' millions of potential consumers, is out of economic gear, and cannot buy even necessities like wool to enable its people to wlibstand the cold and become efficient workers. It is said that it the Russian people could afford to buy even one woollen garment a year the whole of the present surplus of raw coarse wool of the world would be absorbed. Then there is the civil war in China, and the boycott of English goods in India, which has so greatly affected Lancashire. All these factors, and others, have brought about the dislocation of business that has given rise to depression, indeed industrial chaos, in many countries. things have been thrown out of gear, industrial activity has slackened, unemployment lias for months been increasing rapidly, and now assumes a formidable problem in every highly industrialised country, and commodity values, so important to countries like New Zealand. have slumped in a way which no one could have foreseen.

THE GOLD POSITION' There are economists who say .that the world returned to the gold standard before it was ready. Just now the English papers are full of criticism of its statesmen for making the change before the world’s war debts were adjusted. Tiio critics aver that monetary techpique has lagged behind industrial technique, thus causing the breakdown of the economic machine. They claim that the vast and mostly sterile accumulations of gold in France and the United Stales have deprived other countries of a much needed basis for credit, and that if this maldistribution of gold were remedied by wise i co-operation of the central hanks an important stage in the world's industrial < onvalescencc will have been reached. All of this is very interesting to the layman, hut it is curious that the English monetary system lias never yet failed. It was the basis of the credit of the allied nations during the war. Even now there is more money than ever available for certain classes of investment j and this notwithstanding that France has move than double the •gold possessed by England, and the United Stales more than quadruple. Whilst these two countries have been busy securing all the gold within reach, England has been quite content with a reserve of the precious metal sufficient only to provide a tolerable safe basis for its currency. A LACK OF CONFIDENCE In these circumstances the layman is disinclined to accept the statement that the reason for all the present economic disturbance and depression is the maldistribution of the gold of the world. What seems a more reasonable explan-

ation is that the world is suffering from a lack of confidence. It certainly is true of London, where pessimism regarding the immediate future is most pronounced, and London being still the financial nerve centre of the world, despite the attempts of New York and Paris to wrest the position from her, other countries are immediately affected by any untoward condition there. That condition was primarily psychological; it is now economic, and an improvement can only come about by the same means.' Although there is no sign of it at the moment, it may come at any moment, and one may believe that a certain sign would be the defeat of the Socialistic Government, of which industry and capital are profoundly distrustful and afraid. Then with confidence restored the demand for primary commodities would increase, prices would improve, and healthy trading conditions would be restored.