The reasons for the world shortage and the high price of essential commodities are manifold: death and dispersal of potential workers; reduction of output capacity through starvation and disease; destruction of farm stock and reduction in yield from impoverished or badly-worked land; worn-out farm and industrial plant; destruction of productive industrial assets, mines, factories and transport in war-ravaged countries. The world might have recovered by now from this frightful legacy of war, two and a half years after cease-fire, if it were not that large numbers of producers are still absorbed in armed forces and war factories and that we have suffered from a succession of disastrous droughts, storms and floods.
Side by side with the lack of production in most of the world is the pent-up, urgent demand for consumers' goods and for capital equipment, which has resulted in the spending during the last year by Latin America, Canada and Great Britain of a large percentage of their dollar and other liquid foreign exchange reserves, and, in our own case, in our over-spending our current income by £13,000,000 in the first seven months of this year.
The overall international picture is one of a desire on the part of most people to buy consumers' goods, which is greater than present world production can satisfy, with a consequent increase in prices, accompanied by the necessity on the part of most Governments to build up capital assets and to maintain defence forces at the expense of consumer goods—guns and economic guns instead of food, clothes and shelter.
The pull and drag of the many forces at work in the field of world politics, finance and economics are causing a grave distortion of the way of life people would choose, and Governments would wish to help them to live, if there were any reasonable assurance, firstly, that real world peace would be made and, secondly, that creditor nations would undertake as from some fixed date to buy, lend or invest each year up to the full value of their visible and invisible exports. If creditor nations would give this assurance that they would not cause a deflationary lack of balance in international payments, debtor nations could slow down their intense capital re-equipment programme, in the knowledge that they could in the future, without having to engage in a bitter trade war, export as much as is required to pay their debts and buy essential imports.
On top of all the other difficulties, actual and potential, the world economic situation is bedevilled by the fact that in most countries the means of payment, because of deficit financing and bank created credits, exceeds the supply of consumer goods available, thus causing excessive pressure on the prices of consumable goods and capital assets. Deficit financing and the creation of bank credit may be a proper remedy for a shortage of money in times of plenty but can be disastrous when there is already too much money in relation to the supply of goods.
SOME INTERNAL PRICES AND OTHER ECONOMIC INDICATORS.
Here at home this general situation is reflected in our domestic life and trade relations. During the last year a number of important commodity prices rose steeply: sirloin beef 6½d. per lb., leg mutton 8¾d. per lb., eggs 6¾d. per dozen, milk (retail) 1d. per gallon, butter 4d. per lb., potatoes 7¼d. per stone, tea 1/2 per lb. The increase in the price of these commodities accounted for a rise of 20½ points in the cost-of-living index since August, 1946. Clothing, fuel and light added another 3¾ points.
Some other factors regarding our economy which must be noted are: (1) Our imports in the first six months of this year were £52.7 million and our exports £15.9 million, showing what used to be called an unfavourable visible trade balance of £36.8 million but representing to our people, who suffered severely from shortages of all sorts of goods and equipment for nearly eight years, a very welcome supply of the things they were eager to buy. The deficit in visible trade was made good as to £26,000,000 by the favourable balance in our invisible trade, for our external assets only fell by £11,000,000 in that period. An appreciable part of our invisible trade was the sale to tourists of commodities normally exported. If invisible exports had not been so large the adverse trade balance of visible trade would have been smaller. (2) During the period from September, 1946, to March, 1947, industrial wages increased by 10.2 per cent. and have increased further since. (3) Between July, 1946, and July, 1947, internal bank deposits increased by £15.2 million and internal advances and investments increased by £22.8 million. (4) During the past year savings as a whole were probably much below previous levels. This falling off was naturally to be expected but in view of the general economic situation it is satisfactory to note that both savings bank deposits and purchases of Savings Certificates have begun to move up up again during the last few months. (5) Since September, 1946, State debt increased by almost £7,000,000 but this increase is offset as to £4,000,000 by the increase in unspent balances in State funds such as the Transitional Development Fund. There has also been capital investment in the Electricity Supply Board of £1.1 million, in Aer Rianta of £1.5 million, in Bord na Móna of £0.7 million, and of £0.3 million in other State organisations. (6) The value of land and houses increased greatly in the last year, in some cases by as much at 70 per cent. or 80 per cent.
IRISH PRICE INCREASES —CAUSES AND CORRECTIVES.
So far as the rise in domestic prices is not due to outside causes it must be the result either of too much money in the hands of the community or of a reasonable volume of money which is too active for the volume of production. There are some indications, which I hope before long to examine in detail, of a recent increase in the volume of money through bank advances which may not be fully offset by increased stocks of goods and other additions to national wealth. There is every evidence that the money in circulation is very active. In the days when gold moved freely to balance international payments, excess expenditure abroad caused by an inflated or too active domestic income would involve an outflow of gold. To stem this outflow and restore the balance of payments there would be a reduction in the volume of money through a restriction of credit by the banking system. Interest rates would be raised in order to reduce the demand for new loans and old loans would be called in. A deflationary movement would be set going in order to relieve the pressure on the exchanges. When these measures suddenly reduced incomes they caused great hardship: bankruptcies, sharp cuts in wages and social services, decreased production, even of essentials, and widespread unemployment and distress. The cure was sometimes worse than the disease.
Although such drastic correctives were discarded with the gold standard, the fundamental causes of a deficit in the balance of payments remain the same and the remedy for inflationary price pressures must be either a selective or a general restriction of spending out of existing resources reinforced by constant alertness to check any undue tendency towards the expansion of bank credit and the inflation of capital values. The proposals in this Supplementary Budget are aimed at relieving the situation in a way which will cause least damage to our economic life, that is by a selective reduction in spending and by putting a brake on capital values. By taxing non-essentials, by imposing extra stamp duties on inflated capital values and by using portion of the money being spent in these directions to subsidise the increased prices being given for essentials, we aim at curtailing expenditure on non-essentials and at increasing the production of essentials whilst keeping their price to consumers as far as possible in line with existing wage and salary levels. We are relying on price controls to limit profits to a reasonable level rather than upon the machinery of excess corporation profits tax which was found to be ineffective and unequal in its incidence.
CONSUMER GOODS VERSUS CAPITAL EQUIPMENT.
Reviewing the unfavourable developments in the world economic situation the Government has decided against cutting down the expenditure necessary to induce an increase in this and next year's supply of consumers' goods, such as wheat, milk and fuel. Neither will we reduce, except as a last resort, the capital expenditure necessary to increase our ability to produce at home in the years to come our reasonable requirements of the essentials of life. Whilst we will endeavour to keep up reasonable supplies of consumer goods if a selection has to be made between goods that are not essential and the materials for essential capital development, we must, in the long term interest of our people and our children, buy the goods that will contribute to national wealth and security rather than to our immediate enjoyment.
NECESSITY FOR MORE PRODUCTION AND LESS WASTE.
We have thus two objects to achieve: to keep up a fair supply of the goods that are necessary for physical well-being and to improve our ability to live at a rising standard. To enable them to be achieved successfully will require patient and intelligent understanding from the people as consumers and vigorous and intelligent work by them as producers. It is still true to say, as I pointed out in May, that we have not the production to enable us to live at the 1938 standard. No amount of inflation of credit or raising of wages could enable us to do so. The more energy spent on increasing output in farm, factory, bog and mine, and the less energy spent in trying to get a larger share for particular groups, the sooner we will reach and exceed the 1938 standard. I do not wish to go over all the ground I covered in my Budget statements in May, 1946, and May, 1947, regarding the necessity for increasing output, but it was never more necessary to stress that "in the long run the nation can only live at the standard warranted by its current production", and that "if increase of output were not to precede increases in wages and reduction of hours in future, home production would shrink and exports to pay for the things we wish to import would become impossible". In other words, if we do not produce more we cannot eat more or wear more or have better housing or shorter hours or longer holidays.
While the economic situation is serious there is no reason to doubt our ability to survive the next few critical years if we all make a strong and disciplined effort to increase production. This nation has survived more difficult periods. But there is too much at stake for the future welfare of our people for anyone to waste sympathy on those who spend most of their time looking for more money for less work, or for more money for less goods and products. If any group gets a bigger share of what is available, the rest of the community must get a smaller share; those who do not pull their weight are making it harder for the rest. We must speed the plough, the wheel and the pen, and keep them moving for a reasonable number of hours in the day and in the year. Everyone, poor and rich, can do something to help by producing or saving. The world is short, and we are short, of food, fuel and clothes. If some of us cannot produce we can at least avoid all waste and reduce consumption to the minimum for a year or two.
This extra effort and trouble in a time of great distress for the human race we owe as a thanksgiving to our Creator for having so mercifully preserved us in the past, and as an offering for the preservation of ourselves and our children from an even more disastrous holocaust. Events are challenging us as a people to prove our mettle; to prove by our disciplined and vigorous reaction to present difficulties in the Twenty-Six Counties of free Ireland that we are worthy of the sacrifices made for Irish freedom. Go dtugaidh Dia an chiall agus an neart duinn ár ndualgas a chomhlíonadh 'san spiorad cheart.
