THE RISE IN COMMODITIES

FINANCE

IT is difficult to realise that less than four years ago the world appeared to be suffering from a glut of commodities, including Wheat, and that such was the anxiety concerning the position that at the World Economic Conference in 1933 the one point. on which there was general agreement was the necessity for a rise in prices. To that end all kinds of measures were considered. The United States had 'already abandoned ' gold and had set about the preliminaries for devaluation of the currency and expanding credit, while the Empire nations resolved upon a general policy of very easy money with the object of making commodities rise. In the United States even more drastic means were adopted, including the restriction of production and even the destruction of certain forms of foodstuffs.

CAUSES OF DEPRESSION.

At that time very little attention was given to causes responsible for the depression, such as the excessive speculation in Wall Street which had hastened the crash with its direful ' effect 'upon purchasing power and consumption. Nor was much heed given to such further facts as the previous abnormally high prices having automatically reduced pur- chasing ability, while the effect of the fall in commodity prices had been increased tenfold by the fact that owing to labour demands the prices of manufactured goods had- not fallen proportionately to commodities. The general tendency, in fact, was to look to expanded credit and cheap money as a panacea which would bring, about. a cure for the major economic ills from which the world was suffering.

REMEDIES AND RESULTS.

As might have been foreseen, and indeed was foreseen by many, a" cure "has been effected; but at great cost. Whether the " cure " will ultimately be found to be worse than the original disease remains to be seen, but undoubtedly the situation and outlook call for a certain amount of anxiety. The favourable developments which have followed credit expansion and easy money can be fully recognised. In the countries chiefly concerned in the production of primary commodities, such as wheat and wool and metals, the benefits have been great and have improved both the National Finances of the countries in question (Australia in particular) and the general conditions of their nationals, while the improve- ment in the producing countries has also, no doubt, increased their power to purchase in other countries. In the United States and elsewhere industrial ac ivity has been stimulated, and unemployment has to some extent been relieved. It could, indeed, scarcely have been otherwise, for the policy of credit expansion, accompanied by large Government expenditure, must inevitably have a stimulating effect for a time upon industry and employment. It is with regard to the final results that opinion differs as to whether the resort to extreme measures of an artificial character are found to have been justified.

HOW PRICES HAVE RISEN.

Before attempting to consider whether on this occasion results up to the present justify the means which have been employed, it may be useful to note just how prices of leading commodities compare with the period of extreme depression in 1930-33. On this point a timely article appears in the current number of The Economist, and from a table which accompanies the article I note that Wheat, which at the - close of 1927 was quoted at 58s. per quarter, fell in 1930 to 24s. 6d. per quarter and now stands at about 55s. 6d. Rubber, which at the end of 1932 was about 2id. per lb., . is now well over the shilling ; Tin, which at the close of 1930 was about £116 per ton, is now over £285 per ton, having been higher; while Copper, which at the end of 1932 was between £28 and £29 per ton, has risen to over £68 per ton, or nearly to the boom level of 1928-29. Finally, it may be noted that Lead has had even a more spectacular rise, the present price of about £30 per ton being much above the level of either 1928 or 1929.

This great rise has been especially swift during the last six months, during which period The Economist shows that the- prices of Rubber, Cocoa and Tin have risen by-about 5o per cent., while those of Lead and Copper have nearly doubled, and Spelter prices have increased by Iso per cent. I agree With The Economist that "such movements as these cannot be satisfactorily explained in terms of' natural adjustment '. They have been greater even than the rises recorded on the uncontrolled New York markets during the first six months of the Great War." it will be noted, too, that in the case of many of the commodities I have cited present prices are not far from the " boom " level of 1928-9, although at that time prices were regarded as abnormally high. In other words, the means adopted have brought about not merely a recovery to what may be termed " average " prices, but to a level Characteristic of" boom" conditions. It can, of course, be, admitted that during :the pasts ix monthS there have-been special factors operating, such as the devaluation: of the- - currencies of the gold bloc countries and the- armament race amongst the nations; with Great Britain as a late. but ' urgent entrant. .

DEVELOPMENTS.

Having noted some of the favourable develOpMenti Of recent years What to be said with regard to certain' 014 effects of di:measures which have been adopted to bring about, a rise in commodity prices ? The revival may be said to-have been started by -Washington, with its credit expansiOn, Currency devaluation and huge GOvernment expenditure on, relief and on relief Works; though AS segardstbn -money paid:- out for doles ,to, the unemployed it is only' fair- to remember,- that for some- years- our own Government had employed - this method of relieving distress, whereas in America nothing in that direction .;was done until the first year of President Roosevelt's Administration. As a result of this policy speculation started almost immediately in commodity prices and brought about an -early - It was recognised, however, that this same-policy must inevitably add colossal sums to the National Debt and bring about a great increase in taxation. . These expectations have since been fulfilled, 'while the enot- mous influx of gold into the United States during the past" few years has increased the fear of credit expansion going on - to actual inflation. Moreover, although the revival in indtis- trial activity in the States has caused some diminution: in the numbers of unemployed, it is generally estimated that there:: are still about eight million workers -in the- United States-" without employment. Not only so, but, in spite of the methods employed by Washington to deal with the situation and to give' greater privileges to the workers, the Labour situation on the other side of the Atlantic is believed to be still threatening.

CONDITIONs AT HOME, In this country our revival of confidence and industry-has proceeded on somewhat different lines- from what has been experienced in the United States, for With the change of Ministry in 1931 the new National Government was pledged to certain economies in the National Expenditure, a course which- restored. confidence within the country and also the . confidence of those countries 'which'had become apprehensive ,of the effect of Socialistic finance upon Great Britain's credit. Following, however, upon the World Economic Conference, already referred to, and the great success of the conversion of the 5 per cent. War Loan, credit expansion, cheap money and increased Government outlays' for Social Services began to be the characteristic feature of the conduct of °Ur Own National Finances, and the result has been not dissimilar from that noticeable on the other side of the Atlantic. The numbers of unemployed have decreased moderately, spending ability within the country has increased, and 'revival .in Home trade, which has been an outstane in ; feature of the past two years, has still more recently been quickened by the outlays promised under the programme for National Defence. Meanwhile, We _have. the prospect of a great increase in our own National Debt and a further increase in the heavy burden -of taxation, while to all but the actual - producers, 'the great rise in the wholesale prices of commodi- ties is beginning to occasion almost as much concern as did, a few years ago, the abnormally low level of prices for these same commodities.

STATE CONTROL.

Now I am not concerned at the moment with the question of whether the policy. pursued, notably by the U.S. and British Gayerninents, during recent years' is to be commended or not, for I do not consider the time has yet arrived when

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FINANCE

(Continued from page 638.) a final verdict can be given. The alternative course would have been to await a natural, if slower' recovery from the conditions of extreme depression, and there can be no question that the recovery which has taken place during recent years must be attributed, in some measure, to the inevitable reaction from abnormal depression resulting in a great reduction in the supplies of stocks. A point, however, which may justifiably be emphasised is that, for good or for ill, a feature of the developments of recent years has been the initiation of monetary and currency policies by the State and the ever-increasing control of private enterprise both in finance and business. Up to the present these developments have included an admitted recovery in indus- trial activity—chiefly within the countries responsible for the new policy—a recovery which was almost inevitable as a result of Exchequer spending, but today we seem to be confronted with some awkward problems in the shape of a great rise in the cost of living, ever-increasing costs of pro- duction resulting from higher wages and reduced hours of working, with little hope of these conditions being offset by any reduction in taxation.

And because these problems are the result of Government policies rather than of natural causes through the unfettered operation of individual enterprise, there will be a tendency for Governments to be called upon to deal with whatever awkward situations may arise. And because political expedi- ency is usually the inspiration of Government policies rather than sound financial and economic principles, the outlook is one which I am inclined to view with some anxiety. Doubt- less a further rise in commodity prices could be checked by a deflationary policy, but that is to be deprecated equally with inflationary tactics. It is one thing for the State to bring about an industrial revival by artificial measures, but it is quite another to control forces once set in motion.

ARTHUR W. KIDDY.