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been more difficult to offset in some cases than in others. Primary products are the conspicuous example where prices have departed most rapidly and violently from the general movement, and where adjustments have been most difficult. The effects of this behaviour of primary prices are that, in a period of rising prices, farmers gain more rapidly than other of the community unless Government intervention in the form of price-control checks the movement; and that, in periods of falling prices farmers lose more rapidly and to a greater extent than other producing groups. Whichever way prices move, a gap occurs between the prices of primary products and the prices of other products. When prices are rising the gap is in favour of the farmer ; when they are falling the gap is against the farmer. In the former case the farmer's purchasing power rises and he is prosperous ; in the latter case his purchasing power is depressed below the purchasing power of other groups and he is unprosperous. The attached charts give some idea of the process in New Zealand. It is clear from these charts that export prices of produce were amongst the first to react upwards and that until 1917 they moved upwards further and faster than other prices. The peak of the farmer's purchasing power was reached in 1917 when it was about 22 per cent, higher than in 1914. After 1917 other prices began to catch up and the farmer's purchasing power to decline. After 1919 farmers' prices began to fall, while other prices continued to rise and did not fall until about 1920. Thus the break in farmers' prices occurred about a year before the break in other prices. If primary products are among the first to rise, they are also among the first to fall; and on the whole they fall further than other prices. Since 1919 only the two years 1924 and 1925 show a purchasing power to farmers equal to or above that of 1914. The year 19141919 were thus prosperous times ; the longer period from 1919 onwards highly damaging, the average purchasing power of the farmers during this time being only 89 per cent, of that of 1914. Nor can it justly be argued that the prosperity of the earlier years provides an equitable compensation for the depression of recent years. Only in individual cases could this be so. It obviously is not so for those who began their farming near the peak and got but the briefest glimpse of glory. It is not so even for the bulk of farmers who were able to enjoy the prosperous seasons. , There is no simple and divine balance that brings gain and loss into such perfect adjustment. The most obvious fact that emerges from these considerations is that primary producers have less resistance to price falls than have other groups. Why is this so ? Why, indeed, do primary prices fluctuate so widely ? These are crucial questions and their proper answer of the highest importance. This proper answer cannot be found unless the closest attention is paid to the peculiar nature of the demand for and the supply of primary products. Professor Warren writes : " Basic commodities fluctuate more violently than do prices of commodities that have passed further through the process of manufacture and trade. Farm prices fluctuate more than wholesale prices, and wholesale prices fluctuate more than retail prices. For identical commodities in the hands of farmers, products that are located far from the market, fluctuate in price more than products near the market. In general, the greater the distance the commodity is from the consumer, where distance is measured in economic terms, the greater the price fluctuation " (Pol. Sc. Qty., Vol. 39, p. 565). 111. Whetham, in " Politics and the Land," p. 65, writes : " The chief cause of agricultural prosperity or adversity is a combination of two factors, the recurrent rise and fall in the general level of prices and the economic lag between expenditure and receipts in farming operations." The general problem of the " lag " he states as follows : "If prices are rising, a farmer incurs his costs at a lower level, and when he sells he makes a fortuitous profit. On the other hand, if prices are falling, he incurs his costs at a higher level and sells when prices are lower, sometimes for an amount which is less than his costs of production. Hence arises the great importance of variations in price in agricultural economics." This opens out a highly profitable line of investigation into the problem, and a necessary one for a complete account. Clearly, prosperity or adversity results from the relation between the farmer's selling and his buying prices, between what he gets for his products and what he has to pay for his purchases, between his receipts and his costs. But a paper which covered both these correlated aspects would be too lengthy ; and therefore I wish to concentrate on the " receipts " side rather than on the " costs " aspect. My task is to explain why, in a period of falling prices, the prices of primary products generally tend to fall most. This is, at least, part of the explanation of rural depression. The other part, that relating to the movement of costs, is complementary. It can show, for example, that even if wholesale prices fell equally with primary prices, the farmer tends to suffer more than most other producers while the fall continues, because the fall in his costs lags farther behind the fall in his receipts than in most other industries. Nevertheless the fact that a gap appears between the prices of primary products and of other products is sufficiently important and intriguing to warrant investigation, for if the gap did not appear, the problems associated with the adjustment of costs would be less urgent. The gap in prices intensifies the maladjustment of costs and to that extent is an operant factor in rural depression. In the great upward and downward movements of the general level of prices, due chiefly to monetary causes, farmers were for a while the recipients of relatively high prices and then of relatively low prices. This was virtually a universal experience ; it was not confined to New Zealand. Lord Ernie in Economic Journal, December, 1927, p. 583, writes : " The war and its aftermath had reduced the financial system to chaos, and exaggerated all the evils that may result from monetary instability

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