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War Economy
The Economic Stabilisation Conference, September 1940
The Economic Stabilisation Conference, September 1940
The substantial initial rises in retail prices, and the resulting general order increasing wages by 5 per cent, gave wartime stabilisation a very poor start. Moreover, import prices were still rising fast, and it was becoming increasingly apparent that restraint on profit margins would not prevent prices from pushing up wages, and wages from pushing up prices. This sort of spiralling now seemed inevitable, even had it not been boosted by the rising cost of imports and by increasing shortages of materials and services.
The tendency for prices and wages to move upwards was raising the cost of war to the Government and was emphasising the risk that its increasing war expenditures might disrupt the economy by creating runaway inflation. With war taking an increasing share, the supply of goods and services was not sufficient to meet everyone's demands. Unless urgent steps were taken, competition for scarce resources would certainly accelerate cost and price rises.
In September 1940 the Government convened the Economic Stabilisation Conference to consider the possibility of stabilising costs, wages and prices.
The Conference, which was widely representative of various economic groups, was given comprehensive instructions. It was ‘To survey the general economic position of the country under war conditions in order to consider the possibility of stabilising costs, prices, and wages, and to discuss expanding production so that the page 282 strain of war expenditure may be successfully borne and the standard of living be maintained as far as possible.’
At its first meeting, the Conference set up a working committee of seven employers' representatives and seven employees' representatives which, under the chairmanship of Mr A. T. Donnelly,1 received statements and examined twenty-three witnesses. A considerable volume of evidence was studied. The committee's findings were accepted unanimously by the Conference and embodied in a report, made in October 1940, containing a series of recommendations to the Government.2 Of these, the most important was Recommendation No. 6, which stated:
‘The Conference is agreed that it is not possible to stabilise money wages unless essential commodities are available at prices fixed for the same period as money wages. It therefore recommends that, in addition to wages, salaries, and rents, the prices of the following categories of essential commodities and services be stabilised:—
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Essential foodstuffs.
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Essential standard articles of clothing, footwear and household necessities.
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Public services, fuel and light.
In making this recommendation the members of the Conference are fully aware that it is not practicable to stabilise the prices of commodities or raw materials imported from overseas. The Conference, moreover, agrees that in certain circumstances, such as short supply or increased prices, the consumption of some imported goods may have to be reduced by all, or other commodities used instead.
‘The Conference strongly recommends that every effort be made to ensure that the goods value of the pound will remain constant, as otherwise all attempts at stabilisation must fail.’
In summing up the Conference said:
‘The recommendations of the Conference are designed to achieve two main results:—
The first is to stabilise prices, wages and costs so that the cost of the war is not thrown unfairly on one group to the benefit of another. The second is to increase all kinds of production and the efficiency of every type of service which will help, however indirectly, the national drive.’
Meantime retail prices were still rising. By the June quarter of 1941 they had climbed to just over 4 per cent above June 1940, which had been the latest available figure when the August 1940 general wage order was made.
page 2831 Chairman of Directors of the Bank of New Zealand.
2 Report of the Economic Stabilisation Conference, 1940, p. 10.