Sidelights On Finance.
pp. 46-47 · Read in the full issue
The name of W. R. Carpenter is known throughout the South Seas as that of a man who, in a few short years, has built up a huge and very successful trading organisation. As a merchant of substance, and a financier of long vision, Mr. Carpenter is held in respect in the City of Sydney. That is why we publish the following article —the text of an address recently given by Mr. Carpenter. It has no direct bearing on Pacific Islands affairs but, indirectly, it is important, because it seeks to explain conditions which have puzzled the shrewdest heads among us.
THE present depression, particularly
in Australia, points to two very definite causes, namely—time pay ment and cash orders. These were in troduced here from America, but, un like America, we are a debtor nation.
Time payment brought within the scope of those who could not afford it, the ability to purchase many things that could have been well done with out. This evil in itself was bad enough, but this was capped later by the cash order.
Whilst only one or two firms were operating on the cash order system, things were not so bad; but, on ac count of the prosperity shown by these few companies, many others sprang up.
The result was that money was got very easily, and on very easy terms of re payment. This enabled many people to get the cash to make the initial deposit to purchase things on time payment.
As we had to import nearly every thing, and most of the time payment goods included such things as motor cars, wireless sets, gramophones, and things of that nature, imports ran to
a very high figure, and there appeared to be prosperity here. But, as I have pointed out repeatedly, the next crash in Australia would be caused through these two evils. Our former crash was due to land speculation, but we did not seem to have learnt our lesson, Australia ran up to about the second or third country, for imports of such things as motor cars, gramophones, and wireless sets, and the total im ports were in the vicinity of about £140,000,000 annually. Imports from America ran up to something like £40,000,000 per year, because in the wake of motor cars came petrol, oils, and other things of that nature, When the end came to the purchas ing power of the public, by the means of cash orders, then started in the wave of unemployment. It was only necessary for the man at the bottom to make default for it to work through the whole tree, until it reached the top —namely, the bank.
Goods were sold at many times their value, because, in the first instance, the man who sold on time payment had to
load his goods, and he, in turn, could not afford to carry his paper Discount companies came in, and took that paper over at an additional profit. These, again, went on to a big merchant, or the bank, so that everything that was sold here was very heavily loaded, to enable it to pay the different sets of profit and expense that became necessary.
From the very fact that our total of imports fell from £140,000,000 as it was for two or three years, down to £60,000,000, shows that we imported very many things we could well have done without. Cash orders were abused to such an extent that, with a great number of people, the very clothes they wore were purchased on this cash order system.
This meant that the whole nation was really in debt.
We borrowed heavily abroad, be cause of Customs and income taxes were booming and our revenue was very high; but as soon as the depres sion came along, the purchasing power of the people fell, and, in consequence, every article had to recede in value, as people had to do without many things that they were formerly able to purchase.
As the spending powers of the public were reduced, firms began to see their turnover fall heavily. Many people in motor firms, and other luxury lines, were first to lose employment, and these were unable to buy the supplies that they formerly obtained. Conse quently, “up the tree”; the big retail stores felt the pinch, people were un able to buy; they, in turn, put off more hands; and thus unemployment grew.
As our revenue fell, so the Govern ment was unable to obtain money.
Public works, on which very many millions were spent annually, had at tracted many people to this country who should never have come; these were thrown out of work, and gradu ally our army of unemployed grew.
This put a tremendous strain upon Governments, and more taxation had to be levied on those who were able to pay. Finally, wage earners and every one had to be taxed so as to be able to keep the men who had, unfortun ately, lost their employment.
Our position is not irreparable. We have all now studied strict economy, and our vast number of unemployed will be absorbed, but it is going to be a slow process. In the long run, it will be best; because people will get mt permanent employment, whereas, be fore, we had a vast army of people who were dependent simply upon loan money and extravagance to keep their
employment.
When the exchanges in Australia were allowed to go, then we really started on our move upwards, and, o top of this, the British Government, having decided to go off their Sterling basis, gave a further 25 per cent, to our producers. Thus to-day we stand
with a 55 per cent, premium on our goods. Consequently, our primary producers are able to carry on, and this, in turn, reflects itself through the whole of the nation. They are able to pay their debts and purchase the goods they require. This means more work to stores and manufacturers, and increases employment.
The feeling of uncertainty as to what is going to happen to our exchange is now stultifying that progress a little; but if the Banks and the Government will come out with a bolder policy, and stabilise exchange at what it is, there will be a greater feeling of confidence.
This was reflected, a little while ago, in the Stock Exchange, when all stocks started to move upwards. But the first breath that exchanges were likely to fall stopped all this, and stocks began to fall —people began to hoard their money again.
France has stabilised her franc at 124 to £, although she has something between £500,000,000 and £600,000,000 of gold. If the laws of supply and de mand in gold were to operate, the franc would go to its original value of 20; but to do this would ruin many people.
France has been prosperous, because she stabilised her exchange, and the feeling of confidence amongst the people enabled them to go ahead.
Unfortunately, we owe great sums of money abroad, and having to pay in terest in England makes a big drain on our Government. When it is all said and. done, this only amounts to something like £7,000,000 annually, whereas the Sterling, having gone to P er cent - depreciation, and our own exchange to 30 per cent, depreciation, our exports, which, under former con ditions, would only realise somewhere about £55,000,000 or £60,000,000, now in the vicinity of £90,000,000 to £100,000,000 this year, thus giving Aus tralia much more money to use in ternally.
We have the pernicious theory of a fiduciary issue being driven at us all the time. Let us view what this means. Say the Government did issue £20,000,000 notes, what would be the result? Employment would be found for many people, it is granted. But this would lead to a false prosperity.
Goods would have to be imported to the demands of the people, and that £20,000,000 would gradually go into the hands of the big storekeepers and others, and drift back to the banks.
When that is done, what is to happen again? All the people who were put m temporary employment through the issue would be thrown out, or a further fiduciary issue put out. A fiduciary of this kind is like a snowball—it is no thing more or less than a loan, and, as we pile up debts, so we must under stand that we have to pay both in terest and redemption upon that debt!
The result would be far worse than any other cure.
By letting the exchanges stop as they are, the money is being circulated amongst the people, and it is giving permanent employment instead of casual employment, which latter is the worst kind of employment.
Australia had created a vast army of workmen who were dependent solely and simply upon our powers to borrow We, a small nation of between 6,000.000 and 7,000,000 people, have the colossal
debt of £1,100,000,000, and we have no reserves to live upon. The older nations have put by big sums, and they are able to draw upon those reserves, but, unfortunately, we have nothing of the kind to help us over the bad times.