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War Economy

The Economic Stabilisation Committee, September 1941

The Economic Stabilisation Committee, September 1941

The Economic Stabilisation Committee, set up in September 1941, consisted of the Minister of Finance, the Minister of Industries and Commerce, the acting Chairman of the Economic Stabilisation Conference, and five representatives of employers and employees. The page 284 Committee was to advise the Government on matters relating to prices and incomes, and to work out details of a comprehensive plan for promoting the economic stability of the country.

To have any hope of success, the plan had to be comprehensive and had to be worked out in detail before any attempt was made to put it into operation. It was no use trying to hold prices stable if wages were not held, nor wages stable if prices were not held. Neither prices nor wages could be kept stable if other costs continued to rise. Moreover, with reduced importing, the gap between money incomes and the flow of goods available for civilian consumption was steadily increasing, making price control difficult and giving an impetus to black marketing.

The problem was to plan a stabilisation framework which would be workable in detail, and acceptable, both in principle and in its application, by the various sections of the community. The task was bristling with difficulties. The Committee settled down to a long, hard job.

By the beginning of 1942 some of the requirements were beginning to emerge and, in preparation for the more comprehensive stabilisation scheme, an Index Committee was set up in January to prepare a new price index suitable for war conditions.

Meantime, in November a workers' application had been taken to the Arbitration Court for a further General Order increasing wages.1 To the workers, the apparently inexorable rise quarter by quarter in the Retail Prices Index threatened a substantial loss in purchasing power if they did not take steps to have their pay rates increased. But the Arbitration Court, in December 1941, took the unusual step of rejecting the workers' application.

The Court must have been considerably influenced by the risks of inflation under war conditions, for it had before it price and wage index numbers which showed that the effects of its August 1940 general order in restoring the purchasing power of wage rates had already been almost cancelled out by subsequent price increases. This evidence showed that, by the September quarter of 1941, nominal wages had risen on average only ½ per cent above the new rates fixed by the 1940 order, but prices had risen almost 5 per cent.2 The page 285 Court referred in its pronouncement to the possibility of further reductions in ‘the volume of goods available and able to be consumed in New Zealand.’ It may well have felt the need to allow a little extra time to see what results were likely to follow from the Government's measures in August and September 1941, and from the efforts of the Economic Stabilisation Committee.

1 The application was made on 10 October under the Rates of Wages Emergency Regulations 1940.

2 The 5 per cent order in 1940, if all salary and wages had been affected, and if the resulting cost increases had been passed exactly into prices, would have generated a price increase of about 1·8 per cent. (Estimate derived from Inter-industry Studies of the Department of Statistics.)