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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Assessment of the Early Attempts at Stabilisation

The brief discussion in this chapter of the safeguards in the new comprehensive stabilisation scheme has pinpointed some of the reasons why the more piecemeal attempts up to the end of 1942 were unsuccessful. However, one should not underestimate the strong inflationary influences with which stabilisation attempts had to contend in those years.

In the first 3 1/4 years of war the financial strain on the economy was building up rapidly, as distinct from the last 2 3/4 years, to be dealt with in the next chapter, when the strain, though quantitatively much greater, was more constant.¹ Moreover, the structural changes necessary to switch the economy over to a maximum war effort tended to be concentrated into the earlier period. Both these influences would have made a rigid stabilisation scheme difficult to administer, and perhaps a little out of keeping with the need for rapid economic adjustment.

A significant reference to the problem of readjustment in the early war years is contained in the following extract from Prime Minister Peter Fraser's December 1942 statement introducing the scheme of complete stabilisation:²

‘Our people are working hard and earning more money, but the supply of things they can buy has not increased. It is growing less page 291 because of the inexorable needs of war. Since 1939 the national income has increased by about £50 million, but the supply of goods people can buy has decreased by more than £40 million, that is the gap between the supply of goods and purchasing power is of the order of £100 million. This excess of purchasing power has begun to swamp our price control….’

Put this into perspective by remembering that in these years national income was under £300 million, and it is not surprising that the stabilisation measures of the early war years were only partially successful. Only a fully comprehensive scheme, such as that introduced at the end of 1942, could have hoped to succeed. Even that might have failed to cope with the situation in the earlier years, when massive portions of New Zealand's productive resources were being diverted to war work and the financial strain of war was doubling and trebling from year to year.

Chart 59 gives an impression of the widening gap between incomes and goods available. The income figures used are not adjusted for taxation. The effect of taxation, loans, and saving in reducing private expenditure is discussed in Chapter 12.

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In the context of this ever-widening gap, an economy under rapid structural change, and import prices which rose about 50 per cent between September 1939 and December 1942, the recorded increase of 14 per cent in prices and wages up to December 1942 takes on a new significance. It indicates, in fact, a considerable measure of success in coping with exceptional difficulties.

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Noteworthy Events in the First Three Years of War

Year	Overseas	Military and Political Events in New Zealand	Economic Events in New Zealand
1939	War declared 3 September.	State of Emergency declared, 1 September.	Price Stabilisation Emergency Regulations, issued on 1 September. Motor spirits rationed from first week of war. List of reserved occupations goes into use.
		12,000 men had volunteered by 19 September.	Industry controllers appointed in September. Factory Controller, in September, finds some essential materials in short supply. Income tax rates raised 15 per cent and indirect taxes increased.
		Empire Air Training Scheme announced in October. Battle of River Plate, 13 December.	Primary Production Councils established. Numbers of unemployed and in assisted employment falling. (19,000 at outbreak of war.)page 294
1940	Rationing of bacon, butter, sugar, in United Kingdom.	Armed forces strengths 12,300 by February.
	Churchill becomes Prime Minister in May.	Savage dies in March. Fraser becomes Prime Minister.	Waterfront Control Commission set up in April.
	Evacuation of Dunkirk, May–June.	Niagara sunk in approaches to Hauraki Gulf in June.	Sales tax doubled in June.
	France capitulates in June.	Power to conscript men for military service taken in June.	United Kingdom request in June to switch production from butter to cheese.
	Italy enters the war in June.	War Cabinet announced in July.	Co-operative stevedoring first introduced in July.
			National Security Tax (1s. in £ of income) commences in July.
	Battle of Britain, August to October.		First general wage order, in August, raises wages by 5 per cent.
			First war loan, about £10 million.
			Economic Stabilisation Conference in September.
		First ballot for military service in October.
	Nauru Island installations shelled, by German raider, in November and December. Five phosphate ships sunk.	Armed forces strengths 60,500 by November.	Numbers unemployed or assisted, 13,000 in December.page 295
1941			Restrictions on private building intensified in January.
		70,700 men and women serving by February.
	Lend-Lease Bill signed by President Roosevelt in March.
	Clothing rationing in United Kingdom from June.		Factory Controller protests, in June, at continued loss of men to the forces.
	Germany attacks Russia in June.		Second war loan, £10 million.
			38 items stabilised in price in August. Economic Stabilisation Committee first meets in September.
			New Zealand receives first shipment of Lend-Lease supplies in October.
		82,300 men and women serving by November (more than 50 per cent overseas).
	Pearl Harbour attack in December brings Japan and the United States into the war.
			Distribution of tyres controlled from December.
	Repulse and Prince of Wales sunk off Singapore in December.		Numbers unemployed or assisted, 6000 in December.page 296
1942	Fall of Singapore in February.	Armed forces strengths reach 125,000 by February.	Manpower direction into industry begins in January.
	Loss of Malaya and Netherlands East Indies cuts off main sources of raw rubber and tin.		Commissioner of Defence Construction appointed in March.
			Second general wage order, in April, raises wages 5 per cent, with limits.
	Allied merchant shipping losses at their highest in first half of 1942.		Third war loan, £15 million.
			Weekly hours for defence construction raised to 54 in March (to be reduced to 48 in June).
			The first food item, sugar, rationed in April.
	Battle of Coral Sea in May.		Wool price raised 15 per cent in May.
			Indirect taxes increased in May.
	First thousand-bomber raid on Germany in June.	17,000 United States Marines arrive in June.	United States Joint Purchasing Board established in New Zealand in June.page 297
	Battle of Midway Island in June.	War Administration set up in June to be responsible for the war effort. (7 Government and 6 Opposition members.)	Prime Minister refers to very grave stock position for petrol and tyres.
			Defence construction at peak in June. Dwelling construction at its lowest level.
			Prohibition of civilian radio work.
			United Kingdom requests switch back from cheese to butter.
			Goods Transport Control Committees set up in June.
	Nauru Island occupied by Japanese in August.	New Zealand Government in August rashly promises a division, to be available in the Pacific before the end of the month.	Director of National Service in July recommends postponement of further balloting for armed forces.
			Surcharge on income tax raised from 15 per cent to 33 1/3 per cent and National Security charge increased by 6d. in the £.
		Peak mobilisation (157,000) in September (30 per cent of male labour force serving).	Waikato mines taken over by the State in September.
	Battle of El Alamein begins 23 October.	National Party members withdraw from War Administration in September.	Fifty per cent of National Income goes to war purposes in 1942–43.
	November worst month of war for merchant shipping losses.	Limit of manpower resources reached (November).	Start of shipbuilding operations for United States forces. Controller of Shipbuilding appointed.
	Eight Army occupies Tobruk in November.		Fourth war loan, £10 million.
			Numbers unemployed or assisted, 2000 in December.
			Comprehensive economic stabilisation scheme started in December.