Title: War Economy

Author: Baker, J. V. T.

Publication details: Historical Publications Branch, 1965, Wellington

Part of: The Official History of New Zealand in the Second World War 1939–1945

This text is the subject of: ‘Something of Them Is Here Recorded’: Official History in New Zealand

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The Consumer

Though wage rates remained remarkably stable for most of the war years, the increased availability of overtime raised workers incomes, and the influx of women into the labour force meant an extra income earner in many homes. Manufacturers' and contractors' incomes were increased, also, by the pressure of demand for war production and essential civilian supplies, and by the good prices offering for war contracts generally. Moreover, New Zealand had entered the war with consumer spending at a high level. The inter-war period had seen a tendency towards equalisation of incomes, and the Labour Government's Social Security scheme accelerated the trend by transferring income into the hands of those with special needs, where the proportion of income spent was likely to be high.

High consumer spending, with its resultant pressure for imports, had been a contributing factor to balance of payments difficulties in 1938. Increased imports of capital equipment added to the external strain, and controls were placed on exchange and imports. Import restrictions, while they eased balance of payments difficulties, did nothing to remove the cause. The excessive demand inside New Zealand for goods and services remained, and was accentuated by war conditions.

In the early years of the war, the tendency towards high consumer spending hindered the Government's efforts to divert a maximum of resources to war purposes. Some of the monetary and fiscal page 460 measures used to cut back consumer spending are discussed in Chapter 11 and 12. Orderly marketing, rationing and other measures, which distributed scarce goods more fairly, reduced the fierceness of competition and eased the strain on the less favourably placed consumers.

The war did not halt the Social Security programme, though it may have slowed up its full implementation. The first Social Security benefits became effective from 1 April 1939 and, between 1938–39 and 1939–40, the cost of benefits and pensions rose from £7·7 million to £11·5 million. The annual commitment increased steadily to reach £17·6 million in 1944–45 and £20·9 million in 1945–46, after which the introduction of the universal family benefit and other extensions was to increase annual commitments by over 70 per cent. Thus, by 1945–46, the cost of benefits and pensions was almost three times what it had been in 1938–39, while the annual payments per £1 of private income were more than 50 per cent higher. This tended to add to potential spending by consumers at a time when there was inevitably a reduction in the availability of goods and services.

As indicated in Chapter 12, an excess of spending power still remained in the hands of consumers, after extra taxation had had its effect. Despite Government restraints and organisation of distribution, a disorderly scramble would have ensued had not most consumers resigned themselves to the scarcity of goods, particularly consumer durables, and saved their money, to be used when goods became more plentiful. Special arrangements whereby workers could authorise employers to transfer regular amounts from their wages into National Savings Accounts played quite an important part in increasing savings by the general public. Intensive publicity campaigns for war loans also assisted, though much of this saving came from larger investors.