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War Economy

Holding Prices and Costs

Holding Prices and Costs

The new stabilisation scheme was to cover all essential costs and payments. Prices, farm returns and costs, transport charges and operators' costs, wages and rent were all stabilised at their December 1942 levels. To hold these costs and payments required a variety of techniques. Subsidies, standardisation, simplification, zoning, rationalisation, government importation and selling below cost, absorption of part of the costs by traders, and loading nonessential items with the increased costs of essential goods; all these techniques were used.

A decision had been made earlier in December 1942 to stabilise the prices of 110 items of food, clothing, hardware, furniture, stationery and other essential household commodities.1 The regimen of the Wartime Prices Index contained 238 items and ranged over a wider field, to include fresh fruits and vegetables and rentals of state and other houses.

While it was intended wherever possible to prevent any rise in the prices of the stabilised items above the basic level of 15 December 1942, the Government did not bind itself to hold every stabilised price. Taken as a whole, the prices of these stabilised commodities and services were to be kept stable. Where an increase in price for a commodity was unavoidable there would be a compensatory fall in the price of some other item. This policy was specifically adopted for the 110 stabilised items, but, if the Wartime Prices Index was to be kept steady, it was apparent that a similar policy would have to be applied to the 238 items in the index. Within a short time the range of stabilised items had been widened accordingly.

The Economic Stabilisation Emergency Regulations had extended the provisions of the Fair Rents Act 1936, and its amendments, so that all rents, including those of business premises and farms, were stabilised at their level on 1 September 1942.

If confidence could be sustained in the fairness of the Wartime Prices Index, and if the index could be prevented from rising by

1 H. L. Wise, a member of the Price Tribunal, wrote in Wartime Price Control in New Zealand, p. 28,
‘Stabilisation goes further than control inasmuch as it aims not at the control of prices within certain limits, e.g., according to the extent of increases in costs due to the war, but rather at the maintenance of costs and prices at a predetermined level. This implies the absolute prevention of further cost increases above the level ruling at the predetermined date such as could bring about resulting increases in prices, or, alternatively, the meeting of any increases in costs that do take place by such means as will obviate the necessity for any compensating increases in prices. It also involves the determination of standards of quality and in some cases the determination of a standard article, for, although the price of a commodity may remain constant if the quality falls the effect may be just the same on the consumer as if the quality had remained constant and the price had risen.’

page 302 as much as 2 ½ per cent, wage increases could be avoided, so eliminating a major cause of further cost and price rises. Farm payouts, also, were tied to the Wartime Prices Index. Farmers' incomes had to be kept in line if the Stabilisation scheme was to operate fairly between farmers, salary and wage earners and other groups. At the same time, farmers' expenditure covered a variety of goods and services whose costs had, in equity, to be held if prices paid for farm produce were to be stabilised.

When the main stabilisation plan was announced to the country, an indication was given of how farm prices and costs would be adjusted within the new stabilisation framework. Prices for farm products were not to be increased: similarly the major farm costs were to be held. Stabilisation accounts were established for farm products. Any price increase received from sales of farm produce overseas was credited to the appropriate stabilisation account. Similarly, any subsidy paid to keep the cost of production down to the base level of December 1942 was debited to the appropriate account. General agreement was reached with farmers' organisations about the conditions under which these stabilisation accounts were to operate and the major costs to be held.

The economic stabilisation scheme operated over those years when wartime inflationary pressure was at its height. Price control and subsidy payments were essential features of a comprehensive scheme of economic stabilisation at a time when war expenditures were high and the arrival of consumer goods was restricted. The policies were administered by the Price Tribunal and the Economic Stabilisation Commission, working together under the same Minister of the Crown.

All consumers were interested in the relationship between income and the prices of goods and services. Most of them looked to the Wartime Prices Index as an indication of price change, but no group of consumers was so directly concerned with this index as the wage earners, whose remuneration was directly tied to it. It was a significant endorsement of the Wartime Prices Index when the Federation of Labour unanimously approved the stabilisation scheme.1 No doubt the presence of Mr F. P. Walsh, a leading trade unionist, on the Stabilisation Commission assisted in securing the scheme's acceptance by the workers. Mr Walsh had also been Chairman of the Index Committee. He was to become President of the Federation of Labour from 1953 until his death in 1963.

1 See letter on p. 311.