War Economy

Front Cover

Spine

Back Cover

Official History of New Zealand in the Second World War 1939–45

food for britain

— from a painting by C. M. S. Beans

A 37-ship convoy under attack, November 1940. In the foreground is the Rangitiki carrying New Zealand produce.

The escort ship, Jervis Bay, hopelessly outgunned, turns and steams at full speed towards the raider, a sacrifice which saved most of the convoy.

supply ships

Title page Official History of New Zealand in the Second World War 1939–45 THE NEW ZEALAND PEOPLE AT WAR WAR ECONOMY J. V. T. BAKER HISTORICAL PUBLICATIONS BRANCH DEPARTMENT OF INTERNAL AFFAIRS WELLINGTON, NEW ZEALAND 1965

Preface

I HAVE enjoyed writing this book. World War II, which is central to it, is unique in New Zealand's economic history because of a massive diversion of resources to war purposes. This in itself was a challenge. But in setting the stage, the book has had to span wider. It takes in thirty of the most momentous years in New Zealand's development from a predominantly farming community to a mixed economy. Moreover, these were the years when New Zealand emerged as a welfare state. The nature of the war effort was influenced significantly by these economic changes. It, in its turn, influenced them.

Outstanding among those who have assisted me has been Mr S. G. Elmer, whose painstaking research has extended over more than four years. The enthusiasm and thoroughness with which he has gone about this work have been a tremendous encouragement to me in completing a task which has been much more difficult, and has extended over a far longer period, than any of us anticipated. Mr Elmer has also prepared most of the statistical tables and helped me with planning the charts, chronologies and illustrations. I am grateful also to Mr L. G. Melville, who drew the charts, and to Mrs L. S. Aitken who typed the manuscript and frequently gave me valuable advice on presentation and layout. Mr Elmer, Mr Melville, and Mrs Aitken are all colleagues in the Department of Statistics.

Valuable assistance and advice on portions of the manuscript have been received from Mr H. G. Lang of the Treasury, Mr W. D. Rose, until recently on the staff of the Department of Statistics, the late Mr V. G. Boivin of the Marine Department, the Rev. A. A. Ross of Papatoetoe, Mr C. W. G. Bearman of the State Electricity Department, Mr P. W. Smallfield, until recently Director-General of Agriculture, Mr A. T. Fussell of the Railways Department, Mr R. J. Polaschek, Commissioner of Transport, and Mr J. F. Robertson of the State Services Commission. I acknowledge also the unfailing courtesy of the Editor and staff of the War History Branch, now the Historical Publications Branch of the Department of Internal Affairs.

I have been fortunate to have the advice of Professor F. W. Holmes as technical editor. Through his guidance many improvements have been made.

To all these people I am most grateful; but I have not always followed their advice, and I take full responsibility for any shortcomings in this book. Except where otherwise stated, all opinions expressed are my own.

J. V. T. Baker

WELLINGTON

AUGUST 1964

CHRONOLOGIES

Each of the four chronologies follows the chapters to which it relates. For easy reference while reading, their top corners are marked in black.

ROUNDING

On occasions figures are rounded off to the nearest thousand or some other convenient unit. This may result in a total disagreeing slightly with the sum of the individual items as shown.

CURRENCY

Unless otherwise indicated, values are expressed in New Zealand pounds, which were valued at approximately £125 NZ = £100 sterling from January 1933 until August 1948, and thereafter at parity with sterling.

Contents

Page PREFACE v PRELUDE: THE WAR EFFORT 1 1 PRE-WAR ECONOMY 4 2 PREPARATION FOR WAR 27 SOME NOTEWORTHY PRE-WAR EVENTS 51 3 FROM PEACE TO WAR 54 4 THE DEMANDS OF WAR 70 5 INCREASING PRESSURE ON MANPOWER 81 6 PROBLEMS OF SUPPLY 105 7 MANUFACTURING UNDER WAR CONDITIONS 147 8 WARTIME FARMING 181 9 DEFENCE CONSTRUCTION 220 10 THE FINANCIAL COST OF WAR 251 11 THE QUEST FOR FINANCIAL STABILITY 278 NOTEWORTHY EVENTS IN THE FIRST THREE YEARS OF WAR 293 12 ECONOMIC STABILISATION 298 13 WAR CONTRACTS 341 14 TRADE AND THE BALANCE OF PAYMENTS 366 15 TRANSPORT DIFFICULTIES 391 16 FUEL, POWER, AND SERVICES FOR PRODUCTION 423 17 LIVING AND WORKING IN A WAR ECONOMY 443 18 EASING THE STRAIN 481 NOTEWORTHY EVENTS IN THE LAST THREE YEARS OF WAR 499 19 FROM WAR TO PEACE 502 20 RECOVERY AND DEVELOPMENT 532 NOTEWORTHY EVENTS SINCE THE WAR 574 APPENDIX I: Statistical Tables 581 APPENDIX II: Items in the Wartime Prices Index 639 BIBLIOGRAPHY 644 INDEX 651

List of Illustrations

Frontispiece Food for Britain: a convoy under attack, November 1940 Following page 72 A typical scene at mustering time on a Canterbury station Department of Internal Affairs Modern dairy farming methods State housing, Wellington Tourist and Publicity Department Construction of the Ngahauranga Gorge road in 1938–39 Public Works Department Plant assembled for levelling work at RNZAF Station, Whenuapai, January 1939 Public Works Department Enlisting for the First Echelon, 2 NZEF, at Wellington C. P. S. Boyer Construction work at Trentham in the early weeks of war C. P. S. Boyer The first troops leave New Zealand, January 1940 Weekly News, Auckland Following page 152 Levelling the site at Waiouru Camp in August 1940 Weekly News Carpenters at work on a dormitory at Waiouru in September 1940 Weekly News Assembling engines for training aircraft C. P. S. Boyer Assembling de Havilland training aircraft in a Wellington factory Director of Publicity Modern small-arms were produced in considerable quantities Government Film Studios Production of Bren carriers in a motor-car assembly plant Government Film Studios Stamping out steel helmets for the Home Guard and E.P.S. Government Film Studios Trailer fire pumps for the Far East forces Government Film Studios Following page 184 Fertiliser loading installations, Nauru Island New Zealand Geographer Processing fertiliser in New Zealand Sparrow Industrial Pictures Ltd., Auckland The phosphate quarries at Clarendon, Otago Department of Agriculture A Maori girl ready to start milking Department of Internal Affairs Servicemen help with the harvest Government Film Studios Services vegetable production scheme, Levin Department of Internal Affairs Women at a Pukekohe factory coring cabbages for dehydration Weekly News Processing linen-flax fibre, Foxton Department of Internal Affairs Following page 232 Arrival of United States forces, Wellington, June 1942 G. Silk, Australian Ministry of Information A United States Marine makes friends with a City Milk Department horse on the Wellington wharves C. P. S. Boyer Marine Corps camp at McKay's Crossing, near Paekakariki Installing power at the New Zealand built camp for United States Marines at Anderson Park, Wellington Department of Internal Affairs A United States Marine takes delivery of bacon Department of Internal Affairs United States Joint Purchasing Board warehouses at Gracefield, Hutt Valley Public Works Department Constructing a shipyard at Auckland for the United States Navy Department of Internal Affairs Brides for the United States Weekly News Following page 368 Loading butter for export Director of Publicity Telescoping lamb carcasses to make the best use of refrigerated shipping space Department of Agriculture Unshipped wool, November 1944 The Port Bowen aground near Wanganui, 1940 Tesea Studios, Wanganui The barque Pamir, a valuable addition to New Zealand's depleted shipping Department of Internal Affairs Signing the reciprocal aid agreement, United States - New Zealand, at Washington United States official photograph Wellington Harbour Board's floating crane Hikitea unloading a tank from the Akaroa Department of Internal Affairs Troops unloading New Zealand prefabricated buildings ‘somewhere in the Pacific’ 3 NZ Division official photograph Following page 432 The Controller of Shipbuilding (Mr James Fletcher) speaks at a launching Department of Internal Affairs A coastal scow delivers a cargo of kauri and other New Zealand timber Department of Internal Affairs Prefabricated keels of tow-boats ready for transport to an Auckland shipyard Department of Internal Affairs Launching New Zealand built tow-boats, Auckland, August 1943 Department of Internal Affairs Plugging the manpower gaps. An 83-year-old cutting metal for Army buckets Government Film Studios Women in men's jobs: operating a lathe Weekly News Wartime hydro-electric development, Karapiro Station Tourist and Publicity Department Fund-raising campaigns for war purposes—‘Liberty Corner’, Wellington Department of Internal Affairs Following page 448 Free fruit in schools Department of Internal Affairs A collier leaves Westport Department of Internal Affairs Open-cast coal mining Director of Publicity Wartime racing, Trentham, March 1943 Department of Internal Affairs Food rationing. Clipping ration coupons in a restaurant Weekly News Coal shortages affect the housewife: cooking over a primus Weekly News Women tramway employees, Wellington, 1944 C. P. S. Boyer A goods train crosses a viaduct on the North Island main trunk railway New Zealand Government Railways Following page 544 Revival of State house construction, October 1944 Department of Internal Affairs Rehabilitation. Disabled ex-soldiers making surgical boots Sparrow Industrial Pictures Ltd. War assets realisation. Surplus trucks for disposal G. T. Gillies Post-war power development. The Maraetai hydro-electric power scheme Tourist and Publicity Department Part of the Kaingaroa forest New Zealand Forest Service Beef production, Molesworth Station Robin Smith Photography Ltd., Christchurch Rail-air service between North and South Islands New Zealand Government Railways Roll-on ferry, the m.v. Aramoana New Zealand Government Railways

List of Charts

Chart No. Title Years Covered Page 1 Unemployment and Assisted Employment—Males 1931–39 6 2 Public Works Employment 1935–40 8 3 Social Security Benefits and Pensions 1931–40 12 4 Changes in Farm Mechanisation 1929–40 15 5 Imports and Exports (£ million) 1929–40 17 6 Net Overseas Assets of the Banks 1934–39 18 7 Volume of Manufacturing Production 1928–29 to 1939–40 19 8 Reserve Bank Advances to the State 1936–39 21 9 Retail Prices—All Groups (Base: First Quarter 1949 = 1000) 1920–39 23 10 Changes in Volume of Goods Available (in 1938–39 prices) 1928–29 to 1939–40 24 11 Exports of Apples and Pears 1936–51 66 12 Men in the Armed Forces 1939–46 71 13 Numbers in New Zealand Armed Forces (including women) 1939–46 72 14 United States Forces in New Zealand 1942–45 74 15 New Zealand and United States Forces in New Zealand 1939–46 75 16 Expenditure through War Expenses Account 1939–40 to 1949–50 76 17 Numbers Unemployed or in Subsidised Employment 1939–45 86 18 Numbers of Women per Hundred Men Employed in Factory Production 1934–35 to 1947–48 91 19 Manpower Changes affecting Civilian Employment Sep 1939 to Sep 1942 104 20 Volume of Imports (1936–38=100) 1936–41 106 21 Terms of Trade (1936–38=100) 1936–50 107 22 Imports and Reserve Stocks—Corrugated Iron 1936–41 113 23 Imports and Reserve Stocks—Gypsum 1936–41 114 24 Imports and Reserve Stocks—Raw Sugar 1936–41 115 25 Imports and Reserve Stocks—Rock Phosphate 1936–41 116 26 Imports and Reserve Stocks—Motor Spirits 1936–41 118 27 Goods Available for Use in New Zealand 1936–37 to 1949–50 122 28 Lend-Lease and Reciprocal Aid 1941–42 to 1946–47 126 29 Imports from Principal Supplying Countries 1937–46 127 30 Imports Classified by Purpose 1937–46 130 31 Supplies of Rubber and Tyres 1936–45 141 32 Wheat Supplies 1936–48 143 33 Persons Engaged in Manufacturing 1929–30 to 1946–47 150 34 Changes in the Manufacturing Labour Force 1938–39 to 1945–46 155 35 Overtime Worked in Factories 1934–35 to 1947–48 157 36 Numbers engaged in Woollen Mills 1936–37 to 1947–48 162 37 Numbers engaged in Clothing Factories 1936–37 to 1947–48 164 38 Numbers engaged in Footwear Manufacture 1936–37 to 1947–48 165 39 Textiles, Clothing and Footwear Manufacture (Volume of Production of Selected Items) 1939–40 to 1947–48 166 40 Volume of Manufacturing Production (Base 1938–39=100) 1936–37 to 1948–49 179 41 Areas Topdressed 1935–49 197 42 Number of Sheep for Each Dairy Cow in Milk 1936–48 198 43 Butter and Cheese Production 1936–37 to 1946–47 202 44 Livestock Slaughterings 1939–40 to 1946–47 207 45 Production and Exports of Meat 1939–40 to 1945–46 208 46 Breeding Ewes, Other Sheep and Dairy Cows 1940–45 214 47 Lambs Tailed and Lambs Slaughtered 1936–37 to 1944–45 215 48 Output of Principal Farm Products 1939–40 to 1945–46 219 49 Supplies of Selected Building Materials 1937–39 222 50 Defence Construction Expenditure 1939–40 to 1945–46 230 51 Number of Permits issued for New Dwellings 1937–38 to 1947–48 243 52 Numbers engaged on Defence Construction Work 1939–45 245 53 Production of Sawn Timber 1934–35 to 1948–49 247 54 Demands of War on the National Output 1938–39 to 1946–47 256 55 Revenue from Taxation 1935–36 to 1945–46 264 56 Changes in the Public Debt 1939–48 266 57 How the National Output of goods and services was used 1938–39 to 1946–47 276 58 Price and Wage changes before Economic Stabilisation 1939–42 286 59 Aggregate Private Income and Goods available 1931–32 to 1945–46 291 60 Price changes after Stabilisation 1942–45 315 61 Price and Wage changes after Stabilisation 1942–45 323 62 The Gap between Incomes and Goods available 1938–39 to 1947–48 335 63 336 64 339 65 Volume of Exports 1936–47 369 66 Volume of Imports 1939–45 372 67 Net overseas assets of the Banking System 1934–46 385 68 Turn-round of Overseas Vessels 1936–49 402 69 Railways Operations 1938–39 to 1948–49 408 70 Output of Coal 1936–49 413 71 Imports of Motor Spirits 1934–48 418 72 Electricity and Gas generated 1927–28 to 1962–63 426 73 Sales of Electric Power 1938–39 to 1945–46 433 74 Employment in Local Authorities 1937–38 to 1947–48 439 75 Volume of Production 1938–39 to 1946–47 441 76 Marriage and Birth Rates 1927–63 445 77 Labour Force Changes in Industrial Groups: Males at Census Dates 1936–56 494 78 Progress of Demobilisation 1940–47 503 79 Annual Expenditure on Rehabilitation 1944–63 511 80 Retail Prices 1914–63 537 81 Age Groups as a Percentage of Total Population 1923–62 541 82 Social Security Benefits and Pensions as a Percentage of National Income 1940–63 545 83 Trading Bank Advances 1939–63 547 84 Imports and Exports 1940–63 552 85 Net Cost of Invisibles as a percentage of Export Earnings 1950–51 to 1962–63 553 86 Direction of Trade Pre-War Post-War 1960s 557 87 Changes in Farming and Manufacturing 1951–61 560 88 Labour Force Changes 1947–64 564 89 Value added in Manufacturing as a percentage of Value of Imports 1923–24 to 1963–64 572

Prelude: The War Effort

THIS volume is concerned with the economic effects of New Zealand's participation in the Second World War.

Predominantly this is a story of effort—intensive sustained effort leading often to overstrain. The manpower record is a perfect illustration. In war, New Zealand willingly shouldered a manpower load which ultimately proved too great for her population to bear. She committed herself to supply fighting forces on two fronts, and this alone was a formidable undertaking for a small country. But she was also called upon increasingly, as a major food supplier, to expand her production. Despite mechanisation and improvements in methods, it became impossible to find sufficient men for both. In the endeavour to keep faith on the battlefield as well as on the farms and in the factories, truly Herculean tasks were performed.

This type of war effort must have been motivated as much by patriotism as by economic motives. But there are also in the pages of this volume examples of waste of materials and effort, of traders who took advantage of shortages of goods to charge exorbitant prices, of producers who took advantage of lack of competition to make excessive profits, and of workers who took advantage of shortage of manpower to make outlandish claims for rewards. In these cases one may well speculate as to the relative importance of patriotism and personal gain in motivating their efforts.

However, when all is weighed up, patriotic effort predominates over the war years. The profiteers, strikers and loafers stand out as the exceptions. Should the historian ignore them? In all honesty he should not—they are part of the story he must tell. But there is a better reason for giving them their proper place in the narrative. These are some of the difficulties which occurred in a time of national stress. They may occur again in another time of stress. Warning of them may well result in more effective effort in the future.

Can the warning be given without conveying, incorrectly, an impression of widespread disorder? It is to be hoped it can, for New Zealand's war effort is indeed a record of achievement of which she can be justly proud.

As a history this volume is probably typical in that it contains a number of strange and apparently contradictory happenings. For example, through the most difficult war years, when the need for extra production was leading to many and varied industries being declared essential, New Zealand's most essential industry—farming—was not declared essential. Again it took a rather disastrous nine months for those who had signed the Reverse Lend-Lease Agreement

Parliamentary Paper A-7, 1942, United States – New Zealand Mutual Aid Agreement.

on New Zealand's behalf to discover that what they had signed meant that New Zealand labour used by United States forces in New Zealand, and rewarded often at rates which were excessive by prevailing New Zealand standards, was being paid for by New Zealand.

All the economic events discussed in this volume are directly or indirectly connected with the war, but it is often difficult to say whether or not particular wartime events are effects of the war. For example, the need for stricter economic control was an inevitable part of the war effort, but the tendency to expand Government controls over the economy was already well advanced by 1939; the war merely gave it impetus.

The war can be regarded as having created a state of economic emergency. But this was no new thing for New Zealand. The years 1938 and 1939 had already seen financial difficulties amounting to economic emergency as a result of the falling away of overseas reserves in 1938. In fact the New Zealand economy tended to proceed from one state of economic emergency to another. No sooner was it well on the way to recovery from the depression of the early 1930s than it was faced with the 1938 crisis in overseas reserves. The war came as the third crisis in a single decade.

In wartime the need for maximum supplies of foodstuffs to Britain and their orderly marketing was to require control or supervision of marketing arrangements by the Government. But New Zealand's guaranteed price arrangements for dairy products had already provided valuable experience in Government control of overseas marketing.

The financial strains which were to be imposed on the economy by the war were different only in degree from those imposed by the then Government's welfare policies, and by its extensive public works programme. It is interesting to notice that, though the war caused public works effort to be largely diverted to military construction work, the Government's welfare programme was slowed down rather than halted by the strains of wartime finance. The first steps towards a truly universal superannuation scheme were taken pre-war, but various extensions to the Social Security programme were made during the war years. The next major step, the introduction of the universal family benefit, did not take place until 1946.

The Government's policy of improving working conditions was also slowed down rather than halted during the war years, in spite of the fact that some steps in the programme clashed with the need for more intensive use of labour in the interests of the war effort. However, the decision, in the interests of the war effort, to conscript men for armed service and to direct labour into essential industries represented one of the most drastic reversals of a firmly held policy any Government has been called upon to make.

Much of the Government's handling of wartime economic problems was influenced by its pre-war experiences. The fact that the extensive burden of wartime finance was carried with virtually no overseas borrowing was no doubt attributable in no small part to the depression experiences, when drastic falls in prices for New Zealand's products increased the relative burden of overseas debt servicing until it absorbed a quarter of all export earnings.

Based on information in New Zealand Official Yearbook, 1933, p. 209.

Perhaps equally influential was the firm and almost unfriendly attitude which Finance Minister Walter Nash met on his visit to the United Kingdom in 1939 to renew an existing loan.

Probably the major economic achievement of the war was the success of the Government's stabilisation policy. This policy was assisted considerably by the decision to finance the war by taxation and internal borrowing in preference to overseas borrowing. The stabilisation programme extended well into the post-war years.

A major surprise was the persistence of full employment after the war. Entering the war with a pool of 19,000 unemployed or in subsidised employment, New Zealand had a temporary cushion against the shock of extra wartime demands for manpower for the forces and for increased production;

See also Table 1, p. 581, which gives details of unemployment, etc., up to March 1939.

but these men were soon drawn into normal employment, and the last few years of the war were marked by acute labour shortage. The fact of full employment in war encouraged Governments to believe in the practicability of full employment in peace and the New Zealand Government, amongst others, made provision for maintenance of full employment in the post-war years. In New Zealand this provision proved to be unnecessary. Whether or not it was caused by the war, the economy had been influenced during these years towards the employment of a larger proportion of its population. Full employment, to the extent of acute labour shortage, seemed now to be built into the economy and was to remain a characteristic of it for two decades after the war finished.

CHAPTER 1 Pre-war Economy

Men Not Wanted

WHEN Prime Minister Michael Joseph Savage attended the 1937 Imperial Conference and declared that the causes of war were economic, New Zealand was hardly out of the throes of bitterness generated by the great economic depression of the thirties.

It is probable that memory of the depression was the strongest influence leading to the overthrow of the Coalition Government at the 1935 general election and its replacement by Savage's Labour Government.

Even in 1935, two years after the worst year of the depression, the economy was unable without Government assistance to employ more than eighty-nine out of every hundred men. Eleven in every hundred in the labour force were wholly or partly a charge on the Unemployment Fund. Against this background Savage's Labour Party offered a forceful policy for expansion of production. It was a strongly socialistic policy containing much which was repulsive to many in a predominantly private enterprise economy; but it convincingly promised a determined attack on the sickening spectacle of continued large-scale unemployment. It swept the party into power.

Actually, unemployment had shown quite a strong falling tendency before Labour took office, but this tendency was accelerated in the following two years. The numbers of men wholly or partly a charge on the Fund had fallen from an average of fourteen in every hundred of the labour force in 1933 to twelve in 1934 and to eleven in 1935. In December of that year the Government changed and, in the first two years of Labour administration, the fall continued, to reach nine in every hundred in 1936.

Answering a question about the number on unemployment relief, Minister of Labour H. T. Armstrong said in April 1936:

‘These are the latest available figures up to the 14th March last: Under Scheme Number 5, rationed relief, 15,704; on sustenance, 14,443; gold prospecting, 2,328; afforestation, 1,005; farm subsidy schemes, 3,117; Public Works - roads, aerodromes, etc. - 8,435; local bodies - subsidised employment - 2,831; small farms development, 1,257; miscellaneous, 3,537; a total of 52,657.’

New Zealand Parliamentary Debates (subsequently NZPD), Vol. 244, pp. 360–1, 16 April 1936.

By 1937 it was nearly as low as six.

This was the position when Savage went to the Imperial Conference in 1937—rather more than 6 per cent of unemployment or assisted employment, well under half of the 1933 level, but still considerably above the New Zealand long-term average.

In the next two years there was a distinct danger that the tide of improvement would ebb. In 1938 the numbers who were wholly or partly a charge on the Employment Promotion Fund decreased only insignificantly. There was, however, a considerable increase in the proportion who were working full time in industry with assistance from the Fund, accompanied by a corresponding decrease in numbers on rationed work or sustenance without work.

In 1936 the new Labour Government had emphasised its more positive outlook on employment problems by passing the Employment Promotion Act 1936, to supersede the Unemployment Act 1930. Administration passed from the Unemployment Board to the Employment Division of the Department of Labour which was, in time of war, to become the National Service Department. Emphasis was to be on the permanent extension of employment avenues rather than on temporary relief.

In 1939 a further major step was taken with the merging of the Employment Promotion Fund into the Social Security Fund, in terms of the Social Security Act 1938. This was illustrative of the central place which Labour gave to welfare policy and the tendency to bring together as far as possible for co-ordinated attention the widening range of Government provisions for people with special needs or responsibilities.

With the 1939 change the nature of unemployment benefits also changed and the sequence in these statistics was lost. The new series of information showed comparative stability into 1940, but in September 1939 war came. Its demands for men for the armed forces were soon to alter the whole outlook on manpower. According to the National Service Department,

H-11A, Report of the National Service Department, 1946, p. 74.

New Zealand entered the war with 19,000 men on unemployment benefit or in subsidised work.

Chart 1 shows changes in numbers receiving various types of unemployment assistance.

Chart 1 UNEMPLOYMENT AND ASSISTED EMPLOYMENT - MALES chart of employment statistics

Employment Promotion

The keys to Labour's employment promotion policy were higher personal incomes and expenditure, together with extended public works and housing programmes. The Finance Act 1936 restored public service salaries and the wage rates payable under awards to those prevailing before May 1931, when the first 10 per cent cut on wages had been made under depression conditions. Other wages were to follow suit. By 1937 wage rates, as measured by the Nominal Wage Rates Index, were 21 per cent above the 1935 average.

Various types of monetary provision made by the State were also increased and the range of benefits extended. Pension payments increased steadily from £3·3 million in the year ended March 1935 to £6·8 million in the year ended March 1939. In the following year, augmented by new Social Security provisions, the total of pensions and Social Security payments moved to £12·3 million and in 1940–41 was to reach £14·3 million, which was well over four times the 1935 level.

The numbers of men engaged on public works projects increased rapidly from under fourteen thousand in January 1936 to over nineteen thousand in January 1937.

It is true that, in the early stages, the Labour Government concentrated on transferring men from subsidised employment and part-time employment to full-time public works jobs. For example, highways and road works being carried on at the instigation of the Unemployment Board were transferred to the Public Works Department as from 1 April 1936.

An interesting sidelight on this is thrown by remarks made in September 1936 by Minister of Works Robert Semple:

NZPD, Vol. 247, p. 198.

‘I was quite prepared to find, owing to several years of financial depression, that there might not be a settled policy and I make due allowance for such difficulties, but I was not prepared to find that the whole of the public works activities had been converted into a system for relief of unemployment.’

Earlier Mr Semple had given a more detailed report. He said:

NZPD, Vol. 245, p. 144, 14 May 1936.

‘When I assumed office approximately twelve thousand men were employed, the majority of them being relief workers. The complement today is sixteen thousand men, and when the full programme is in active operation I anticipate considerably increasing the number, even with the introduction of much more plant than is now in use. The existing practice of men for public works being sent direct to the Public Works Department by unemployment bureaux in the different centres, and without any regard whatever to their fitness for the work or their capabilities, will cease; in fact, a reclassification on the existing jobs must be done.

‘…Practically all of the works which have been carried out by the Department for several years have been classified as relief works, and the basic rates of pay have been 12/- per day for married and 9/- for single men. Under the new agreement all works will in future be classed as standard works, and the basic rate of pay for labourers will be 16/- per day and single men will receive the same rate of pay as married men.’

In spite of the prominence given to these transfers of status, often amounting to a reversal of what had been done in depression years, much of the expansion represented a genuine extension of works activity. Moreover, it was associated with mechanisation and labour-saving methods, so that more than ever before was being achieved by the use of labour. In the next two years there was a further steady rise in numbers employed, to reach 22,800 in January 1939, but then a slight fall took the figures back to 21,200 in January 1940, four months after the outbreak of war.

While the Labour Government placed reduction of unemployment high on its programme, the employment promotion aspect of public works was, in the immediate pre-war years, overshadowed by a vigorous policy of improvement of highways, land development, school buildings, aerodromes and other works using the best available equipment.

Chart 2 shows public works employment from 1935 to 1940.

Chart 2 PUBLIC WORKS EMPLOYMENT chart of employment statistics

Public works expenditure which, under depression conditions, had fallen from a level of about £8 million a year to under £2 million in the worst depression year, 1932–33, showed no notable recovery until 1936–37 when it increased to over £4 million. It moved to £7 million in the following year and to over £10 million in 1938–39, taking it above pre-depression levels for the first time. Not unnaturally the Government's public works programme required considerable administrative planning and could not be accelerated rapidly. The housing programme took even longer to gain momentum.

Economic recovery was assisted in the first two years of Labour's term of office by increases of £10 million a year in export earnings. The next two years were not so satisfactory. Export earnings fell and, for 1938 and 1939, stayed £8 million below their 1937 level. Though still £12 million above what they were in 1935 when Labour took office, they were inadequate to pay for the rising cost of imports. The depressive influence on farm incomes was alleviated to some extent by the fact that guaranteed prices held up dairy incomes in 1938–39. This was the first year when guaranteed prices acted as an appreciable offset to the effect of overseas price falls.

The Employment Promotion Fund, after paying out about £4 million a year for each year from 1932–33 to 1937–38, spent over £6 million in 1938–39 and it was not until the first year of war that payments fell below £3 million. Employment promotion was necessary and costly up to and after the outbreak of war.

State Housing

Provision of state-owned rental dwellings was an important plank in Labour's election platform. In the year ended March 1938 the first four hundred units became available under the scheme.

This housing construction was financed largely by Reserve Bank credit, a use of bank credit which provided extra ammunition for the inevitable cross-fire of criticism of any state housing scheme.

The dwellings were let at low rentals, admission being subject to a means test. Strictly uneconomic,

And to become more uneconomic as rentals remained fixed while costs rose.

these rentals were given a semblance of relationship to costs by charging only a nominal rate of interest on bank loans to the Government for housing purposes.

Later there was considerable controversy over the actual method of financing state housing (see for example NZPD, Vol. 291, p. 2691 and onwards). Loan money, once borrowed, becomes available with other monies for a variety of uses and it is difficult, if not impossible, with most state borrowing to say that the money was raised for any particular purpose, or to distinguish the uses to which it was actually put, but the above paragraphs give a reasonable indication of what was done. The rate of interest charged averaged about 1 1/4 per cent.

Needless to say this concealed form of subsidy did not escape the attention of the critics.

The programme for construction of state housing was stepped up rapidly and, by the outbreak of war, about three thousand of these dwellings were becoming available each year.

Besides providing housing for the more needy members of the population, the state housing scheme added to the total demand for construction work and, with the augmented public works programme, helped to absorb unemployed labour.

Towards the Welfare State

Some of the public works projects inaugurated by the Labour Government in the late 1930s were spectacular, and several, notably the Ngauranga Gorge road and the coast road from Plimmerton to Paekakariki, are still outstanding as monuments to New Zealand's most colourful Minister of Works, Robert Semple. However, in these four pre-war years of Labour government probably the greatest influence on the New Zealand economy was the Social Security Act 1938.

Coming into force in April 1939, this Act provided for a system of monetary benefits on a contributory basis and introduced medical, hospital and maternity benefits. Contributions were to be made at a flat rate on virtually all income. Benefits were payable to those with specific needs or commitments, irrespective of the amount of their previous contribution. The most spectacular change was that medical, hospital and maternity benefits were not to be subject to means test and that superannuation benefits, initially at a low rate, were also universal. The universal superannuation benefits were to co-exist with the more liberal age benefits which were still subject to means test; but they would gradually approach the age benefits in value and ultimately supersede them. Family benefits at this stage remained subject to means test, but in 1940 were extended to an extra child so as to be payable for each child after the first, where the income was under £5 a week.

Previously payable to each child after the second.

The Act also extended the range of other types of benefit with the express purposes of providing for all persons who, through youth or age or misfortune, were not able to share adequately in the national output.

The Social Security Act aroused widespread controversy. As we have seen, its immediate effect was to increase the cost of benefits from £6·8 million in 1938–39 to £12·3 million in 1939–40; but the promise of an increasing rate of universal superannuation gave a warning of considerably heavier commitments to come. There were many who thought that the scheme must break down under its own weight, especially in times of unfavourable overseas trading conditions.

Many interesting comments are recorded in Hansard where, for example, reference is made to statements by the Farmers' Union:

NZPD, Vol. 252, p. 371. Quoted by Hon. Mr Cobbe.

‘The Union is rightly concerned respecting the large addition to the imposts of the Government and their possible effect upon the already seriously depleted sterling funds in London. The Union also directs attention to the effect it may have upon New Zealand's credit in London; especially so as £17 million of loan money will fall due in the first year the proposed scheme comes into operation.’

The Farmers' Union said, further:

‘We would emphasise that in our opinion to proceed with the scheme along the lines of the present proposals is imprudent financially. The prospect of a possible £15 million increase in general taxation at some future time is a possibility which cannot be viewed other than with the gravest misgivings.’

The Associated Chambers of Commerce were no less condemnatory. They said:

Ibid. Quoted by Hon. Mr Cobbe.

‘The Prime Minister and the Minister of Finance put forward the hypothesis that maintenance of the same rate of increase in the exports of New Zealand in the next 40 years as in the last 40, would enable the growing costs to be met. We consider that to place any reliance on such a supposition, as a basis for maintaining the scheme, would be reckless.’

The possible future increase of £15 million in general taxation was to prove to be a masterpiece of under-estimation. Twenty years later social security benefits were to cost an extra £68 million a year. On the other hand the volume of exports was to increase by well over 50 per cent in the same twenty years, justifying the confidence of Michael Savage and Walter Nash.

In this 20-year period, export prices were to rise by 208 per cent and consumer prices in New Zealand by 119 per cent. The £ in 1959 would have less than half its 1939 purchasing power.

Chart 3 gives some impression of the impact of Labour's social security policy on the cost of benefits and pensions.

Apart from the fact that they raised average living standards by providing for those with extra needs or commitments, probably the most important economic influence of the new social security provisions was their very considerable redistribution of income from saving to spending groups and the resulting initial tendency for a higher national total of spending and a smaller national total of saving. However, it did not take very long to become apparent that this boost to spending led to an expansion of the New Zealand domestic market and was an encouragement to productive effort.

This encouragement to production tended, while there were unused resources, to offset inflationary aspects of the scheme.

In fact there tended to be a secondary redistribution of income back to selling and producing groups, but with a considerable fillip to economic activity in the process. This secondary redistribution was to saving groups, but often to people who, by ploughing back profits, helped to finance development. There were quite strong links between social security and economic development.

See also ‘Social Services and Economic Development’ by J. V. T. Baker in Welfare in New Zealand, edited by K. J. Scott.

Chart 3 SOCIAL SECURITY BENEFITS AND PENSIONS chart of social security statistics

Unfortunately this internal effect was not the only effect of welfare provisions. The resulting higher national total of spending also raised the propensity to spend on imports, and tended to create overseas exchange difficulties in years when export prices were unfavourable.

Savage himself was the driving force towards the expansion of social security benefits, just as Robert Semple was the spearhead of public works expansion. However, behind the scenes, as Minister of Finance, Walter Nash—to become Prime Minister two decades later—was effecting a dramatic change in Government financing and financial control in order to make all these changes in works and social security policy possible.

New Zealand entered the war with her welfare provisions leading the world and being rapidly expanded. Wartime changes were to be minor, but generally in an upward direction.

Changes in Farming

For the farmers, crisis had followed crisis in the 1930s. No sooner were they free of depression conditions than there was a threat to the continuance of the free market for their products in the United Kingdom. It was only after very strong protests from New Zealand farmers that the United Kingdom Government in 1934 abandoned a proposal for an import quota on butter and cheese, and instead decided to subsidise United Kingdom milk production. Imports of meat were not so lucky. A compromise system of short-term quotas operated from 1935 until it was superseded by wartime bulk purchase arrangements.

New Zealand's allocations under the short-term quota system were not unduly restrictive.

Meanwhile the economic depression had had its influence on many facets of Labour Party policy. It was the income-reducing effect of overseas price falls, perhaps more than their effect on overseas funds, which had enabled the world depression of the early 1930s to communicate itself so fully and disastrously to New Zealand. The Labour Party pledged itself to protect farmers against instability in their incomes.

As part of its policy of insulation, it offered the farmers a guaranteed price for their products which would make them, in the short run, independent of price fluctuations in overseas markets. As it turned out, producers of meat and wool preferred to be without the guaranteed price, and the system applied only to dairy products.

The guaranteed price for dairy products, introduced in August 1936, very quickly came under pressure when, in 1937–38, rising overseas prices led to a surplus in the account and the farmers promptly demanded a higher payout. They got it.

In the following year prices fell and the guaranteed price protected dairy farmers against the fall, so to some extent insulating the internal economy. But this insulation did nothing to protect New Zealand's overseas reserves; in fact it may well have been one of many influences leading to continued high importing and to an exchange crisis towards the end of 1938.

Meantime a more lasting change had been taking place in farming—a change which was to have a material influence on its manpower requirements under war conditions. The industry was being very rapidly mechanised and, stimulated by research work by the Department of Agriculture and the Department of Scientific and Industrial Research, very considerable improvements in methods were being made.

Between 1936 and 1939 the number of agricultural tractors increased by 69 per cent, and in 1940 there were almost twice as many tractors in use as in 1936. This was an amazing transition in only a four-year period. The number of electric motors on farms increased by 60 per cent between 1936 and 1940. Milking machines had been in quite widespread use by 1930, and after 1933 their numbers increased some 770 a year until there were nearly 29,000 by 1939. But, more important, hand stripping, which had always been regarded as an integral part of machine milking, was being eliminated on some farms. The Dairy Board reported:

Annual Report of New Zealand Dairy Board for year ended July 1944, p. 49.

‘In November and December, 1941, a survey was made of approximately thirty herds where no hand stripping had been carried out for one or more years…. The production data indicated very little, if any, fall in output per cow as a result of no hand stripping, whether analysed on the basis of the same cows before and after the introduction of non-stripping or on a herd basis.’

Because of these changes, farming, which had in earlier years steadily increased its labour force, was now able to maintain ever-increasing production with a comparatively stable labour force. The change in rate of growth of labour requirements for farming was apparently not widely recognised until after the war and this misunderstanding was to have a major effect on wartime manpower planning.

Chart 4 shows changes in farm mechanisation between 1929 and 1940.

Chart 4CHANGES IN FARM MECHANISATION INDEX NUMBERS - CONVERTED TO BASE 1929 (= 1000) chart of farm statistics

Dependent or Independent Economy?

In pre-war years the United Kingdom was taking four-fifths of New Zealand's exports and supplying nearly half of her imports. Nearly another quarter of New Zealand's imports came from other Commonwealth countries. Commonwealth trading arrangements had been formalised in 1932 in the Ottawa Agreement, and for New Zealand this meant, in the main, the exchange of tariff and quota preferences with the United Kingdom. In effect it gave New Zealand an assurance that the United Kingdom would continue to absorb the bulk of her exports free of duty and quantitative restrictions, while New Zealand agreed to maintain a 20 per cent tariff preference on most imports from the United Kingdom.

These arrangements, while ensuring a market for farm products, gave New Zealand no protection against price changes on a United Kingdom market which was from time to time affected by over-supply.

In its 1935 election campaign the Labour Party had promised to insulate the New Zealand economy against external economic fluctuations. In the first two years of Labour administration, insulation would have involved siphoning off increases in export earnings. The Coalition Government had left the country with substantial overseas reserves. Then in Labour's first year of office export prices rose 14 per cent, and by a further 15 per cent in the second year—truly a most favourable start for any Government's term of office. But in these years the only steps towards insulation were some diversification of the economy and the accumulation of £0·6 million in the special account set up under the guaranteed price scheme for dairy produce.

Between 1936–37 and 1937–38 export prices fell by more than 5 per cent, and Labour's promise was put to the test. The fall in export prices continued into 1938–39, with a further reduction of 3 per cent. These falls were serious but still left export prices at 19 per cent above their level in 1935 when Labour took office. In 1938–39 the dairy farmers' guaranteed price insulated their incomes against the fall, the Dairy Produce Account going into deficit by £1·9 million for the purpose. But the most serious price fall was in wool, which in 1938–39 realised 35 per cent less than the peak prices of 1936–37. Here there was no insulation.

The Government carried on with its expansion policy as if the economy were in fact insulated.

Fortunately import prices were still below their pre-depression levels and the purchasing power of a given quantity of exports increased by 23 per cent between 1935 and 1937. Between 1937 and 1939 this purchasing power, or terms of trade, decreased by 8 per cent, but this still left it 13 per cent above the 1935 level.

However, it was soon to become apparent that insulation would require either unlimited overseas funds or irksome internal restraints.

In 1936 the value of exports had moved above the 1929 level for the first time, when £57 million was earned. The next year earnings increased to £67 million but fell away again to £58 million in 1938 and 1939. Meantime imports, stimulated by increased internal purchasing power and augumented by extra orders of heavy equipment for the public works programme, had increased rapidly up to 1937. The rapid mechanisation of farming also added to the expansion of import requirements.

Imports and exports are shown in Chart 5. Export receipts have to pay for a substantial unfavourable balance of invisible items, such as debt servicing, as well as to meet the cost of imports.

Chart 5IMPORTS AND EXPORTS (EXCLUDING SPECIE) chart of import and export

When export earnings fell in 1938, imports remained high, leading to successive falls in the overseas reserves of the banks. This influence, combined with some flight of capital as a result of a loss of public confidence, resulted in the overseas reserves in December 1938 falling to the dangerously low level of under £7 million. The Labour Party's promise to insulate the New Zealand economy was now under a most exacting test. Disaster was avoided by resort to exchange and import controls at the end of 1938, but, even so, New Zealand entered the war with overseas reserves still at an extremely low level. They were only £16 million in December 1938, £20 million below their December 1935 level. Changes in net overseas assets of the banks are shown in Chart 6.

Chart 6 NET OVERSEAS ASSETS OF THE BANKS chart of bank assets

Import controls were a direct restriction on the freedom of action of a considerable economic group and must have seemed a high price for them to pay for the attempt at insulation. But the Labour Party seems to have been tolerant to this form of control.

Some members had advocated it for many years.

It offered secure protection for the rapid expansion of manufacturing which would be essential if the production base of the economy was to become broad enough to make insulation practicable.

Whether the electors would have tolerated import controls was not really put to the test at this stage. Before there was another election, import controls, along with many other controls, were to become necessary to protect the war economy.

Insulation against overseas economic disturbances had not proved so easy. The country had been subjected to import restrictions and, even with these restrictions, there was still considerable danger of financial disaster in New Zealand's external relations. It may not be fair to say, as some have said,

NZPD, Vol. 256, p. 446.

that the war saved the Labour Government from financial disaster externally, but it is certain that a very crucial testing period was avoided when war came and completely changed the influences on the external economy.

Diversification of the Economy

In the depression, factory production had fallen by 19 per cent while farm production remained comparatively stable. In fact 1932–33, which in many respects was the worst year of the depression, saw a sharp rise in farm production. Nevertheless there was, in the 1930s, a definite indication that it might not be too long before manufacturing overtook farming as New Zealand's major producer.

Manufacturing output made its first major recovery in 1934–35 when there was a 14 per cent increase over the previous year. In 1935–36 there was a further 9 per cent increase and in 1936–37 a 14 per cent increase. This brought the level of factory production to 53 per cent above 1931–32, which had been the lowest year in the depression, and to 30 per cent above the pre-depression level of 1928–29. After 1936–37 the rate of increase tapered off, with a 7 per cent rise in 1937–38 and 5 per cent rise in 1938–39. In the following year, aided no doubt by the exchange restrictions, which became effective in December 1938, and the supporting quota restrictions on imports, the increase in manufacturing production was 10 per cent.

Chart 7 shows changes in the volume of manufacturing output from pre-depression to pre-war years.

Chart 7 VOLUME OF MANUFACTURING PRODUCTION chart of manufacturing production

In accordance with the Labour Government's declared policy of expanding production, a Bureau of Industry had been set up in 1937 to plan new industry. The Bureau discussed and was interested in varying degree in the establishment of a number of new industries. However, it is likely that the shelter given, from 1938, by import restrictions did much more than the Bureau towards the diversification of industry. It was Labour's intention to expand industries other than farming, in order to make New Zealand less dependent on overseas sales of a narrow range of farm products. Quantitative control of imports gave the opportunity for considerable direct influence in this direction.

Import controls were to give fertilisers and other farm requirements first priority, then capital equipment and raw materials for industry. However, there were many major consumer goods such as tea, sugar and petrol which it was politically inexpedient to cut back in time of peace. Thus the range of preferred items was very wide, and considerable cuts were necessary in less favoured items. Industry in New Zealand tended to fill the gaps. The result was certainly diversification, but often in a rather haphazard way.

Even before import controls, manufacturing was gathering strength and, in spite of the depression, output increased well over 50 per cent in the decade preceding the war. The rapid upward movement of factory production in the late thirties—an increase of 36 per cent in the four years from 1935–36 to 1939–40—was no doubt assisted by other Labour policy measures which increased consumer spending and also made direct demands on the economy through the expansion of public works.

New Zealand entered the war with a wide range of manufacturing industries. Some were still in the embryo stage, but, faced with extra wartime demands, they were to fill many gaps left by the preoccupation of overseas suppliers with their own war requirements.

Financial Difficulties

On the financial side, one of the outstanding influences of the pre-war period was the very sharp lesson which had been given during the depression on the pitfalls of allowing overseas indebtedness to rise too high. Falling export earnings in the depression years had resulted in overseas debt servicing absorbing well over a quarter of all export earnings. What remained was quite inadequate to pay for imports. Relief came in due course with rising export prices, assisted perhaps by depreciation of the currency in 1933. Borrowing continued on a reduced scale until 1933 and, in 1934, there were some repayments of overseas debt.

The lesson was that it was obviously bad policy for any Minister of Finance to allow overseas debt servicing to loom relatively so large again. This made a profound impression on the Labour Party, which was to show a marked reluctance to borrow overseas, even under stress of war conditions. Some economists and others have not taken the same lesson from the depression and there has been pressure for renewed overseas borrowing and quite sharp criticism, on occasions, when overseas indebtedness has been reduced.

NZPD, Vol. 273, p. 337. Also Vol. 282, p. 1686, and Vol. 292, p. 2108. As time passed and export prices rose, repetition of depression difficulties would naturally seem much more remote.

In accordance with its declared policy, the Labour Government nationalised the Reserve Bank in 1936, but there was not very much use of Reserve Bank credit until June 1938. Government net indebtedness to the banking system as a whole increased by less than £4 million between March 1935 and March 1938. However, in 1938–39, advances to the Government began to rise and Government indebtedness increased by nearly £18 million between March 1938 and March 1939.

Reserve Bank of New Zealand Bulletin, November 1959, p. 173.

Chart 8 shows Reserve Bank advances to the State and emphasises the rapid upsurge after the second quarter of 1938. Government securities held by trading banks were also increasing.

Chart 8 RESERVE BANK ADVANCES TO THE STATE chart of reserve bank advances

As might have been expected, there was very considerable public criticism at the increasing use of bank credit by the Government.

For some of the more sober criticism see Evening Post second leader, 13 March 1939, third leader, 31 March 1939, second leader, 26 April 1939, and leader of 1 May 1939.

All sorts of national disasters were foretold. Some loss of public confidence certainly resulted, aided no doubt by the evidence of overseas difficulties offered by falling overseas reserves. There was some flight of capital from New Zealand, aggravating the overseas reserve situation. To bring the results nearer home, Post Office Savings Bank deposits fell sharply, cutting at an alternative source of government funds. In the two years from March 1938 to March 1940, withdrawals exceeded deposits by £8 million.

In 1939–40 Government indebtedness to the banking system increased by a further £12 million, but part of this sum was required for war purposes.

Rising Retail Prices

At the outbreak of war, retail prices were 25 per cent above their 1933 level and had been increasing steadily. After a first tentative increase of a little over 1 ½ per cent in 1934, annual price increases had been around 3 or 4 per cent, except for the increase of nearly 7 per cent in 1937 which was probably attributable in part to the general wage increases of the previous year. The rate of price increase was fast.

There were considerable inflationary influences on the economy, especially after the Labour Government commenced its legislative programme in 1936, but unemployment was being steadily reduced and New Zealand's production was expanding. In other words, a considerable portion of the extra spending potential was being absorbed by extra production and reduced unemployment, so it is a little surprising that the rate of price increase was so rapid.

In this context, however, it should be noted that, in 1939, retail prices had still not reached the level of the highest pre-depression year. In the 1920s prices had been relatively stable, fluctuating by only 4 per cent upwards or downwards, but between 1929 and 1933 they had dropped by a fifth. By 1939, after six successive years of rises, prices were still just a little below the average for the 1920s.

Chart 9 shows price changes between 1920 and 1939.

Chart 9RETAIL PRICES - ALL GROUPS INDEX NUMBERS - BASE FIRST QUARTER 1949 (= 1000) chart of retail prices

Living Standards Rise and Fall

What was happening to living standards while these momentous influences were changing the economy? Goods available increased steadily from 1931–32 to 1937–38 but then fell slightly under the influence of falling overseas earnings and import restrictions. However, goods supply part only of people's needs.

There is no comprehensive measure of living standards; all the statistician can provide is an approximate measure of the physical things which people use. These figures, taken on a per head basis, give some indication of potential living standards. The depression year 1931–32 stands out as a low point in the series and a good deal of the immediately following increase represents post-depression recovery.

One of the features of the depression period was that at the very time when overseas price changes were reducing the ability of New Zealand exports to purchase overseas manufactures, New Zealand's own production of manufactured goods was also drastically reduced. Expressed in 1938–39 prices, goods to the value of £116 million were available for use in New Zealand in the June year 1929–30.

New Zealand Official Yearbook, 1945, p. 598.

This was made up of £69 million which remained from local production after allowing for exports, together with £47 million worth of imported goods. Imports (again valued at 1938–39 prices) fell to £27 million in 1931–32 and, partly as a result of an £8 million fall in local production, goods remaining from local production after exports fell to £57 million. Thus a fall of £20 million from imports was accompanied by a fall from local production, and the volume of goods available for use in New Zealand fell staggeringly by 27 per cent in these two years.

Thereafter the volume of goods available for use in New Zealand increased slowly until 1933–34 and then rapidly until 1937–38. In the next two years it fell once more, as a result of declining imports.

Chart 10 shows changes in the volume of goods available and also in goods available per head of population, and throws some light on the more material aspects of living standards. It is of interest that the 1929–30 volume available per head was not again reached until 1936–37.

Chart 10 CHANGES IN VOLUME OF GOODS AVAILABLE chart

Goods available per head reached a low point in 1931–32 and then increased yearly, accelerating in the period 1934–35 to 1936–37, with a more moderate increase in 1937–38. However, overseas prices fell, and there was not sufficient insulation to prevent falling export earnings from pulling down living standards by 2 per cent in the following year. This was only a forerunner of more drastic cuts in living standards which would become necessary under war conditions.

Pre-war Economic Crisis?

In forming judgments about the pre-war situation, proper weight must be given to the fall in export earnings in 1938, which was one of the causes leading to import restrictions. It is equally important not to overweight this influence. Export earnings averaged £57 million a year for the years 1935 to 1939 as compared with £41 million a year in the preceding five years, 1930 to 1934. This is hardly a fair comparison, as the latter five years included the depression. However, in the pre-depression years 1925 to 1929, export earnings had averaged £52 million. The average for the immediate pre-war period 1935 to 1939 was 10 per cent above this level and, in the conditions of the time, this cannot be regarded as an unsatisfactory result.

The year 1937, when export earnings reached nearly £67 million, was in fact an all-time record up to that point, and the year 1938, to whose waywardness the imposition of import controls has been attributed, was then the highest year of any on record, except 1937. Looking back, therefore, it is difficult to see how New Zealand could have got herself into such financial difficulty externally, unless she was pushing her internal resources too hard or building up an excessive money demand which was spilling over into importing.

The internal economy was not under extreme upward pressure. Numbers unemployed and in assisted employment were still as high as 19,000 at the outbreak of war. Although some economists at the time referred to this as full employment, war and post-war experience was to show quite clearly that full employment in New Zealand could bring the unemployment level down to hundreds rather than thousands.