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Graphic: An Encyclopaedia of New Zealand 1966.


This information was published in 1966 in An Encyclopaedia of New Zealand, edited by A. H. McLintock. It has not been corrected and will not be updated.

Up-to-date information can be found elsewhere in Te Ara.



The Depression

The depression was in origin a matter of markets and prices; prices for all major exports suffered a sharp and prolonged fall. The cut in the farmers' income blighted the whole of society and government; merchants and shopkeepers who sold to the farmer, banks and credit agencies who had lent him money, workers who handled and processed his products. The whole economy slowed down, and the symptoms of the illness appeared everywhere: farmers unable to meet interest payments and threatened with foreclosure, tradesmen and shopkeepers faced with bankruptcy, large employers reducing staff and cutting wages, wage earners either unemployed or underpaid facing destitution and eviction. Generally speaking, society was divided into two groups: those who could hold on in straitened circumstances and await the upturn, such as established farmers, business and professional men, and white collar workers with secure tenure; and, secondly, those with little or nothing to fall back upon, small farmers on poor land, wage earners subject to dismissal, casual workers, the aged, the widows, and the infirm without private means. For these latter, there was no recourse beyond niggardly public relief and haphazard private charity.

Government policy was marked by an insistence on long-term objectives and by grave inflexibility. Rightly enough, the Coalition ministers reasoned that a society based on rural production would best be rehabilitated by stimulating the primary producer. Less adequately, such stimulation was attempted within a narrow framework of ideas as to the limits of acceptable economic policy. Coates's pragmatism showed itself towards the end of the depression, but it was tardy and inadequate. Downie Stewart's orthodoxy – balancing the budget, living within one's means, letting the forces governing the market have free play – dominated Coalition thinking. It was a policy of belt-tightening, of yielding to the inevitable, of waiting for the corner to be turned. However, with the farmer, some attempts were made to bring the corner closer.

In the first place, steps were taken to reduce the farmer's costs and increase his income. Wage cuts served this purpose, for wages, either directly or indirectly, were an item in the farmer's cost of production; to hasten wage reduction compulsory arbitration of disputes was revoked, the culmination of a lengthy campaign by farmers' leaders. Cuts in public servants' wages were an economy measure, too, for a government with a dwindling revenue and comparatively rigid commitments, for instance on overseas debt. The alteration of the exchange rate from parity to £NZ125 = sterling 100 (the move that prompted Stewart's resignation) was designed to appreciate returns from farm exports. Fertiliser was subsidised by the State, to keep up rural productivity. A series of measures in 1931 and 1935 protected the impoverished farmer against foreclosure and enabled interest rates upon farm mortgages to be reduced, a policy extended by the Labour government. A mortgage corporation, to operate independently of the government and upon orthodox lines, was set up to provide rural credit. These extensions of State activity, together with the creation of a semi-independent Reserve Bank as a national banking authority, were Coates' chief contributions – contributions which gave some offence to the conservatives and no comfort at all to the increasing, if variegated, company of radicals. By 1934–35, owing in part to these measures but more to a recovery of world prices for wool and meat, the situation had distinctly improved. The budget had been balanced, thanks to new taxation (e.g., the sales tax) and rigid economies (e.g., wage and pension cuts, the cessation of public works, the reduction of the school population); London reserves were in a healthy condition; and public revenue was buoyant. But there was still an army of unemployed, and the dairy farmer, a notable element in the North Island population, had not yet sighted the corner.

Urban distress met with no comparable attention from government. The farmer was protected against foreclosure, but not the rent-paying worker against eviction. Soup kitchens, relief work, boredom, apathy, strikes, and sometimes riots, dominated the life of the unemployed town worker. A poll tax and an income tax, with irregular subsidies from general revenue, financed the unemployment fund, from which was drawn relief wages for men employed either on trivial tasks around the towns or on major construction projects in remote areas. Wages were low and work was rationed; such work was demoralising. Resentments multiplied, in the idle towns, the unemployment camps, and among the depressed farmers. It was a ready soil for grievances and for panaceas. “Something ought to be done” would well express the mood of the times – of the unemployed worker, the bankrupt farmer, the appalled minister of religion and charity worker, the merely indignant observer. A cause had to be found, and it was likely to be identified as an international conspiracy of bankers, using the Coalition government as its (perhaps) unwitting tool. By 1934 few of those who had suffered from their vulnerability or had been affected by the suffering of others, were ready to let nature, as revealed in economic laws, take its course. A mounting current of public opinion, headed by an energetic Labour Party, a rapidly growing Douglas Social Credit movement, and a numerous body of enraged humanitarians, demanded that the Government do something, no matter how unorthodox, especially about currency and credit, and above all to relieve poverty. The little that the Coalition did came nowhere near to satisfying the demand.

The normal three-year term of Parliament had been extended to four, and the extension justified by the existence of the coalition and the imperatives of the emergency. But 1935 proved no better for the government than 1934 would have been. The recovery was not yet electorally significant. The towns, even “respectable” areas spurred more by indignation than actual suffering, proved substantially Labour; so too did a number of largely rural seats, dominated by the still-depressed small townsman and a number of unrelieved dairy farmers. The chances of the Coalition were further dimmed by the emergence of a right wing Democrat Party of conservatives alienated by Coates's “socialism”. It had no effect other than splitting the anti-Labour vote and so swelling the number of Labour members returned. Without the Democrats, Labour would probably have squeezed in; with their help its share of the votes (less than 50 per cent) was converted into a massive majority of M.P.s. In the campaign, as in the later years of the depression, the Labour Party led by the genial M. J. Savage and allying itself with the currents of “credit reform” opinion set flowing throughout the country, held the initiative. Other parties could but copy its proposals, and the times demanded a more substantial change than such a last-minute conversion. A thorough change could only be a change to Labour.