THE NEW PROSPERITY

Taranaki Daily News, 11 September 1940, Page 6

THE NEW PROSPERITY

At the opening of the economic conference at Wellington several delegates from Labour organisations gave addresses containing hints and suggestions about the "new prosperity" that has come to New Zealand under the new political regime. As the results to date follow fairly closely similar developments in Russia several years ago, and are almost an exact replica of what has occurred in Germany even more recently, there is some ground for the fairly general belief that there must be something in this new economic and monetary policy. Without for a moment suggesting that the former policy in all its ramifications was faultless, which it was not, or that the present policy has no elements of merit, which it has, it is wise to consider just whither the present path is leading.

The basis of the trend towards economic "collectivism" in New Zealand lies in the experience of the masses during the last great depression, the bitterness caused by that depression, and the cry for a greater degree of economic stabilisation and permanent full employment, / upled vith the belief that under the capitalist system such a desirable condition is not possible. Hence the fervour for the new experiments with their system of regulating prices, costs, profits, private initiative and so on. In an article in this column last week it was shown that whereas thi goods available for consumption in New Zealand have substantially decreased during the last two years, the purchasing power in the hands of the people has substantially increased, thus creating a keener and still more keen demand for available goods, and because of this condition a steady increase in prices has occurred, in spite of all that the price fixation tribunal can do. Thus is created a condition typical of all "booms," the difference being that whereas on previous occasions in New Zealand "booms" have been part of the natural cycle under the existing economic policy, on this occasion the "boom" has been to a large extent artificially created by the Government. The first step in any "boom" cycle, whether artificially created by a Government or not, is the complete absorption of the unemployed and an unprecedented degree of economic activity. Accompanying this process is an increase of investments and an increase in the national volume of credits. Up to a certain point this credit expansion is not inflationary, but invariably the point is j reached at which the process becomes inflation.

That this point has been reached in New Zealand there is no doubt. The Prime Minister admitted this fact quite plainly in his opening address at the economic conference, an address which was sensible and realistic to a degree. Mr. Fraser's fears for the future could be seen in various statements throughout his address. The following excerpts are cases in point: — •

(1) "We must prove the case for democracy by ahowing that free men are not unwillins to . travel along this clearjy deflned but difficult path." (Referring to the need for makinsr sacrifices.) (2) "The value' 6f" goods which are available for consumption in New Zealand has fallen from about £133,000,000 last year to about £114,000,000. . . . Though the total of gooda and services for civil use has decreased by some 14 per eent., the amount of money available for spending, after taking into account increased taxes, is still about the same. . . . Prices must tend to increase with the increased pressure of purchasing power on goods to be bought. . . . Price increases bring forth a demand for higher incomes which, if obtained, again force prices up and put stability as far away as ever." (3) "The obvious beginning is to persuade people who have more purchasing power than they saally need to withhold some of their buying of consumable goods. In other words, saving will alleviate the problem." Mr. Fraser is to be congratulated on thus courageously facing up to the facts of a situation which is not admitted in the point of view expressed by a number of his political supporters at a later stage in the conference. He went on to say that the situation would not be relieved unless there were more production of the right kind, or unless some of the existing spending power could be diverted to saving. He is evidently finding some difficulty in persuading his supporters to increase production by extending hours of work, and no doubt he will resort to the second alternative and endeavour to reduce spending power by increased taxation and compulsory loans to the Government. So long as this is made universal, and every citizen is asked to contribute equitably, he is applying the necessary and proper corrective.

Yet even this does not remove the gravest disadvantages and dangers of the economic system on which his Government has embarked. As in Germany the point has been reached in New Zealand when unemployment has disappeared and the galloping horse of increasing investments has to be stopped. Credits rnd investments are openly rivalling consumption, and unproductive public investments, which up to this stage had a "pump priming" effect on economic activity, now become .4 sheer waste. According to Wilhelm Ropke, a very notable Continentai professor of economics who with the advent of Hitler left the University of Bonn for the University of Istanbul, the Governrnents of both Germany and New Zealand "will be compelled to raise bigger and bigger loans or levy higher and higher taxes in order to feed the moloch of full employment. That the amount of voluntary savings going into loans will prove, sooner or later, to be altogether insufficient is evid-. ent enough." Mr. Ropke is unable to see how it is possible, without precipitating an economic crisis, to get off the "galloping horse of investments." He cannot see how it can be done without violent dislocations, heavy losses and painful disturbances. • * 9 • So much for the economic outlook. Referring to full employment and the aoparent advantages to be gained under a system of strict control of economic activity by the Government Mr. Ropke says, "These assets have to be bought at a heavy priee — the lose not only of economic but also of political and spiritual freedom. He must be rather naive who can believe that the rigid and realiy efficient control of prices, wages, profits, investments, consumption and foreign e.\changes is to he had without concentration camps. secret police, and the shadow of prison and death , above everyone." Shadows of this price are already

making themselves manifest in New Zealand. They are seen in the activities surrounding the obtaining of licenses for imports, licenses for manufacture in New Zealand, licenses for undertaking all kinds of business activity in the Dominion, and in the political colour of appoint.ments of a public nature. A striking example of the latter is the last list of Justices of the Peace gazetted a few days ago.