CURRENCY INFLATION.

Auckland Star, Volume LXII, Issue 6, 8 January 1931, Page 4

CURRENCY INFLATION.

AUSTRALIAN SCHEMES.

CONDEMNED BY BANKERS

LESSONS OF HISTORY

An indictment of the policy of those Australian politicians who want to try inflation of the currency hb a remedy for the ills of the Commonwealth, and wish to interfere in private business, is co*l- - in an article in the last monthly publication of the National Bank of Australasia. ..j, Notwithstanding the actual fall in the national income—a fall which cannot be gainsaid, even though it may not be possible to measure it accurately—the lelt wing of the Labour party seems at present to be opposed to reduction in the rates of wages paid in industry, in salaries in the Civil Service, or in making adequate and necessary reductions in the cost of government (says the journal). They appear to think that the community can pay taxation to a practically illimitable extent— that it is only necessary to raise the rates of taxation to swell the Governments revenue. "It would be interesting to find out what some of these proponents of continued high expenditures would do if their own incomes suffered marked relapses. It is certain that, if they were employing labour, they would expect their workers to share with them the reduction in income. At present, bolstered with the idea that the community income knows no end, they are enforcing a policy of payment of wages on works, carried out to provide relief for the unemployed, at full award rates. 'Electors Being Misled.' "If this has no other effect, it certainly x-educes the number of men who can be employed at a reasonable living wage. It provides those men who are employed upon relief work with, no incentive to make an effort to transfer their labour to a productive enterprise. Consequently, it must have an effect comparable with that of the 'dole' in England, and tend to create a more or less permanent group of workers dependent, and many of them willingly dependent, upon the ratepayers for their sustenance. '"It is known that, unless conditions become impossibly bad, excessive governmental expenditures, wages rates based upon the cost of living instead of upon the value of the output, and an unduly high cost of providing relief to unemployed workers, will continue until our legislators take sundry drastic steps which will free us of the burdens mentioned. In the meantime, large numbers of electors are being misled by irresponsible politicians and others, who, however well meaning they may be, have no wide knowledge of the intricacies of business and the history of finance. , These men have political ability, a natural consequence of a long study of that subject, but when matters of finance and the control of industry are under discussion, they should avail themselves of the -knowledge which leaders of business and finance have acquired through their study and experience of the various problems. Before interfering with the conduct of business, they should obtain the advice of skilled business men. "Not only would this lead to a diminution in the number of restrictions placed on business, but it would give industry a reasonable opportunity of showing what it could do if it were not trammelled and hampered in every direction. Inflation 'A Forced Loan.' "Some politicians are still looking to a process of inflation of the Commonwealth note currency as a means to improve industry and to provide the required governmental revenues. They, at least, appear convinced that taxation will not provide the amount required to meet the expenditure shown in the Budget. There is, however, no advantage to the country in providing the necessary money by recourse to the printing press, and the Civil Service would suffer less through a reduction in pay than in having its present nominal salaries actually reduced through the action of currency inflation. "It is surprising how many people are inclined to dally with the idea of inflation, and how many of them seem ready to risk its almost inevitable dangers in the hope of gaining some temporary respite or advantage. Professor Pigou, of Cambridge, one of the world's foremost economists, wrote the following with regard to Government legal-tender paper money:— 'Under an inconvertible paper currency, since the supply of legal tender can be altered to any required extent by a mere stroke of the pen, great fluctuations in the supply, and hence in the value of money, can be brought about by manipulation of the supply. There is, moreover, a special inducement to such manipulation, in that it enables a needy Government to exact a forced loan without interest from its subjects. By issuing new notes to pay its employees, it can, in effect, tax the community to the extent of the payment that it makes to them.' ' "It is amazing to see how many people ! still refuse to be guided by the actual facte of history. These politicians whom we mention wish to issue Commonwealth notes to meet Budget deficiencies. The French Assignats (n6tably in the immediate post-revolution period) were issued for precisely the same reason. The lesson is obvious."