Story: Economic thought

Page 6. 1930s economic depression

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Economics and public affairs

In the 1920s economists taught students, and also gave public advice. Horace Belshaw at Auckland University explored cycles and trends in New Zealand agricultural output, and stimulated academic studies in subjects such as land prices. Towards the end of the 1920s economists from all major universities contributed to a public debate over unemployment.

Overseas examples

The 1930s depression brought economists further into public life. New Zealand-born economist Douglas Copland was recalled from Australia to chair an economic committee to advise government. To temper the adventurous thinking of academic economists the government included the secretary of the treasury as a committee member. It also sought advice from a committee of businessmen, and from other sources.

Copland had already been involved in lively debate in Australia and gave academic-based advice to the Australian government. Copland and Belshaw were in touch with contemporary English debate, and both knew John Maynard Keynes. His advice specifically on Australia and New Zealand was not especially weighty – Keynes played a role like that of John Stuart Mill in an earlier era, his ideas conferred respectability on local proposals.

Economists in government

Economists had been providing advice to the government since their emergence in New Zealand. Bernard Ashwin was secretary of the treasury from 1939 to 1955. He became one of New Zealand’s most influential public servants. He built on Albert Tocker’s analysis of New Zealand’s monetary system and provided insightful analysis of links between New Zealand and Australian banks.

Belshaw joined the office of Minister of Finance Gordon Coates, and contributed economic understanding to the design of government policy on rural mortgages and dairy industry finance.

Things must be bad

 

In the great depression the willingness of the government to turn to academic economists for advice was remarkable. As Allan Fisher, economist at Otago University, wrote in 1932:

‘Any doubts which New Zealand citizens travelling abroad in the early weeks of 1932 might have entertained about the reality of the economic crisis in New Zealand were at once dispelled by the news that the Government had seriously turned to academic economists for advice and guidance. Such a revolutionary change in long established custom clearly indicated the gravity of the situation.’1

 

Social credit and other ideas

Economists were not the only sources of advice in the 1930s. The government had plenty of suggestions to ‘cut the coat to suit the cloth’, accept just retribution for past profligacy, and the usual cant which accompanies economic crisis. There were other movements which arose from popular cults rather than significant economic thinking. This included Social Credit. Begun by a Canadian engineer, Social Credit appealed to the old belief that bankers and other financial interests conspired against the real producers and workers. The ideas had political influence in Canada and New Zealand, especially among dairy farmers, whose incomes took longer to recover from the depression than most. The ideas also influenced many members of the first Labour government.

Many elements of the response to the depression owed little to economic thinking. The policy of ‘insulation’, which favoured the erection of barriers and buffers between international markets and New Zealand incomes, was moderated by economic thinking. Its origins were not rooted in economic theory but rather reflected political moves towards greater protectionism in the world economy.

Depression’s legacy

During the 1930s the government shrewdly chose from different kinds of advice, but relied mostly on the economists. After the depression there was a belief that economists would retreat into the academic world. But there were new challenges for economists like Douglas Copland and others who ventured into public life.

The depression influenced perceptions of economics and economists. It showed that economists provided useful practical analysis and advice to policymakers. Training in economics was seen as a desirable preparation for senior public servants. Public recognition of ‘Keynesian’ economics – which advocated government spending during a recession, but were only loosely related to Keynes’s theories – established the view that newly imported economic thinking could be adapted to issues facing the government.

Footnotes:
  1. A. G. B. Fisher ‘The New Zealand economic problem – a review.’ Economic Record VIII (May 1932), p. 74. Back
How to cite this page:

Gary Hawke, 'Economic thought - 1930s economic depression', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/economic-thought/page-6 (accessed 7 December 2019)

Story by Gary Hawke, published 11 Mar 2010