ECONOMIC POLICY.

Auckland Star, Volume LXIII, Issue 183, 4 August 1932, Page 6

ECONOMIC POLICY.

INFLATION BETTER THAN DEFLATION. (To the Editor.) Major-Gcneral Sir Andrew Russell and other students of the new economics, in recommending measures of controlled inflation to arrest the devastation which threatens to destroy the vei-y foundations of our social system, are not advocating a wild orgy of new money creation, but the adoption of such measures as will result in the restoration of prices within the Dominion to the level which will make it possible for debts to be discharged in a currency as nearly as possible the same as the currency in which they were contracted. Millions of mortgages and much of our national debt were loaned in the depreciated money, and repayment will be impossible unless prices and values of commodities and property are raised or restored by a deliberate policy of reflation. Of the two processes, inflation and deflation, ■there can be no dispute as to which causes the greater hardship. Just as a balloon becomes buoyant and bounds upward through inflation, so deflation causes it to sink and finally to collapse utterly; and so it is with the fortunes of a nation; inflation of the currency causes business to boom and makes it possible for debtors to settle their liabilities, while deflation spreads ruin and desolation throughout the land and may lead to the complete collapse of the social system. The first visible resull of inflation is a gradual rise in prices, and, of course, in wages, which are the prices of services; the invisible results are that creditors lose to the extent of the rise in prices, while debtors gain. Surely there can be no question that there would be no injustice to creditors if inflation were carried to a degree which would make it possible for their loans to be refinanced and discharged. The favourite argument against inflation is that it will raise foreign exchanges against us. Well, what matter if it does? We shall still be able to dispose of our good things abroad for the best prices we can get, and wo shall receive payment for them, as we always do, in the foreign currency, which, will be available, as now, for the purchase of our imports. What matter if prices of foreign goods in New Zealand are raised? We shall have more money to pay them with, for everything else will be higher, wages, salaries and dividends, and wo shall hold our heads higher, too. If the proposals of the new economists were adopted we should never need to borrow any more from England (except for the purposes of converting an existing loan), and it would be possible to stabilise prices to prevent booms and depressions, which are inseparable characteristics of an imperfect money svstem. BARRISTER.