THE DEPRESSION

Rotorua Morning Post, Volume 1, Issue 138, 3 February 1932, Page 4

THE DEPRESSION

^EVERAL PHASES INTERESTING AD|DRESS TO ROTORUA ROTARY club; ECONOMIC SITUATION. One of the most interesting addresses which has been delivered before the Rotorua Rotary Club was given at Monday's meeting by Mr. H. Ive Forde, of the Wellington Evenirig Post staff and the Parliamentary Press Gallery, who dealt from several angles with different phases of the eeonomic depression. 'When we consider the magnitude of the losges from which the world suffefs during a period of eeonomic stagnation similar to that through which it is passing, it is impossible not to be impressed by the almost absolute failure of society up to the present to devise any means by which such disasters may be averted, said Mr. Forde. "One of the reasons for the widespread belief in eeonomic fallacies may be that when times are good the average man does not concern himself with eeonomic or social phenomena, but when times are bad he at once looks round to find out what has hit his purse or his stomach, and, not being sure through unfamiliarity with human vicissitudes, seizes upon the first plausible explanation which comes his way. Forelgn Exchanges. "When the foreign exchanges were functioning smoothly, they attracted only aeademic interest, but once they began to falter, unscientific attention, which is always wider than scientific, iooked for the villain who had thrown the spanner into the works and joined in the hue and cry initiated hy Bassanio — thou gaudy gold, Hard food for Midas. I will none of thee."1 or as Hartley Withers has put it: "When in' doubt, blame the gold standard." The creation of credit was not quite as simple as many people thought it was. "Credit," in the commercial sense, meant the power of inspiring sufficient confidence in others to induce them to provide money or' commodities without immediate compensation. It might be represented in a number of forms, but the most important matter in all cases was the transfer of the control or the use of wealth. Though one generally looked to the bank for the supply of credit, initiation of credit did not come from a bank. It really originated from someone — it might be a Government oi' an individual who desired to spend money in some projeet, good or bad. If the borrower's bank felt reasonably confident that the credit would be repaid at maturity, it granted it, and the expenditure of the money set the whole of the machinery going. Other Influences. " Those who inferred that the central banks of the world were the only obstacles standing between mankind and the enjoyment of prosperity, assumed that all production had been rational. They ignored the existence of new and higher tariffs, eeonomic nationalism, political disturbances and other factors which were necessarily detrimental to a frictionless eeonomic system, and which were outside the scope and province of the bankers and the gold they might hold. In spite of the fact that the gold supply for monetary purposes had been decreasing for years, England, according to authoritative data, in 1928 and for part of 1929, judged by post-war conditions, enjoyed a boom period. In the United States, from 1925 to the third quarter of 1929, prices were remarkably stable, and not all the gold in Washington had availed to stem the ravages of the ensuing depression. A deficiency of credit, due to the scareity of gold, might therefore be ruled out as the sole factor on the question of the world depression. The world's troubles were not due to the gold standard as such, but to quite different causes. A fall in prices might not be due to deflation, but to abundanee. An increase in the supply of a commodity, the demand for which was not very elastic, might cause a rapid fall in its price without the agency of monetary manipulation. From the end of the war until 1929 there had been a continuous though laborious process of reconstruction under new conditions. The world's productive and commercial activities had increased rapidly, but this process •vyas by no means easy or uniform, and complete readjustment of production and trade to changing demand "ivas not attained. Though the details concerning the development of production and trade in this period might be scanty, the important tendencies emerged clearly enough. Production Increasing. It was possible to measure roughly the quantitative changes in the production of basic foodstuffs and raw materials in praetically all the counffies of the world, except China. According to available indices, the total world output of raw materials and foodstuffs in 1925 had increased more rapidly since 1913 than the world population. Output increased by 16 per cent., population by six per cent. Thus the aggregate destruction of wealth caused by the war had been made good, and the world as a whole was already in these years richei than before the war. During the period 1925-29, the population of the world had increased at an annual rate of about one per cent., its aggregate production of crude products had increased by 2.6 per cent., and its total trade by 4.4 per cent. ' The recovery from the present depression had been retarded by t\yo factors, the importance of which should not be neglected— the immense' rise in the tariff walls in the United States and Central Eurppe and ihe' payments of reparation and war debts which the fall in prices had rendered progressively onerous. ' In the face of this situation it would Be the height of folly to ignore tbe iessons of history and adopt a coiirse of concerted inflation. It would do little to remedy the asymmetry of production for instance, and when the sliort' period of artificial prosperity it migHt create was ended, the world wpnld have to clear up the mess caused "by its monetary debauch. Symptom, Not Cure. Qn the whole, then, most people who

were not obsessed by a belief in currency as the root of all evil and the cause of all mischief, would be inclined to aceept the view that the gold situation was merely a symptom, and not a cure for the present depression. No general revival could be expected until the non-monetary obstacles to international trade were removed. "A definite move in this direction by the chief powers of the world would go a long way to restore confidence, and confidence is the thing that is needed in order to arrest the downward trend of prices. As far as I can see the chief barrier in the way is the politician," concluded Mr. Forde. "It is a weakness of democracy to suppose that the politician who tops the poll is competent to deal with the eeonomic problems in the international world as his forebears were competent to deal with customs of their village in the middle ages. Those were days when our ancestors regarded death, war, plague and famine as manifestations of the hand of God, when less was expected of legislafion and when the simpler problems of a less exacting age could be dealt with by a few gentlemen at Westminster. The world of economics, as the world of physics, is a world of natural fact, and its coniplicated processes are only to be observed, understood and eontrolled by patient study and research. Ouf politicians- must be taught what they do not know in order that they may learn intellectual humility. The hope for political competence lies in Parliament aceepting the highest qqalified advice."