8.—3

prices of his goods. Hence profit margins shrink rapidly and may disappear. This leads to a'further curtailment of demand, so that a further fall in prices is necessary if output is to find a market. Since profit is the mainspring of enterprise and productive effort, production must fall off and unemployment increase. Hence the only

Index Numbers of Export Prices and of Farm Expenditure 1927 TO 1931

way in which economic recovery can take place is to cause the profits of enterprise to emerge or increase. Practically this means that a readjustment must occur between selling-prices and costs. The price disharmony, which is responsible for our troubles, is revealed by the following table : —

Table 1. —Index of Prices in New Zealand.

10. Since 1928, wholesale prices as a whole have fallen by about 10 per cent., wholesale prices of imports by about 3 per cent., retail prices by about 11 per cent., and money wages by about 12 per cent. During the same period export prices have fallen by about 43 per cent. ; but the fall in the index number of farm expenditure, which provides an approximate measure of the movement of farm costs, is only about 10 per cent. Meanwhile, despite some economies in public expenditure, it has been found necessary to increase the rates of taxation and levy additional taxes. 11. The first effect of the disparity between the movements of different prices has been a substantial fall in the volume of imports that can be purchased by a given quantity of exports. Expressed in sterling, the fall in export prices has been of the order of 47 per cent., while the fall in imports has been of the order of 12| per cent. Hence 60 per cent, more exports must be sent abroad at the present time to pay for a given quantity of imports. Further the sum due for services of Government and local-body debts payable overseas, which amounts approximately to £9 m. annually*, is fixed in terms of money, and this must be paid out of the proceeds from * In the event of the Hoover moratorium on inter-governmental war debts and reparations, &c., being continued, this sum will be reduced by a net amount of about £1,300,000.

Changed Purchasing-power of Exports.

8

(Year 1914 = 1000.) I I Farm Nominal Year. Wholesale, i Imports. Exports. L, Retail Prices. Wages Jixpenrnture. (Male). 1914 .. .. 1000 1000 1000 1000 1000 1000 1919 .. .. 1703 1941 1671 1511 1567 1304 1924 .. .. 1584 1555 1597 1586 1604 1533 1928 .. .. 1417 1360 1520 1642 1618 1656 1929 .. .. 1413 1355 1456 1636 1607 1658 1930 .. .. 1376 1345 1144 1628 1562 1665 1931 .. .. 1270 1322 874 1490 1447 1542