SUPER TARIFF.

Auckland Star, Volume LXIV, Issue 15, 19 January 1933, Page 22

SUPER TARIFF.

HIGH EXCHANGE.

COST TO COMMUNITY.

DEBT DEFAULT RISK.

(By Telegraph.—Press Association.) WELLINGTON, "Wednesday. The renewed agitation by farming interests to raise the exchange rate was considered at a largely-attended meeting of Wellington business men this afternoon. Mr. Edwin Salmond presided. The following resolution was carried unanimously: That this meeting views with grave concern the advocacy of the Farmers' Union in favour of a 25 per cent exchange rate. It considers the conference is advocating, as some of its members admitted, a high artificial rate, and that euch rate, being a false rate, can only be maintained by the Government guaranteeing banks against loss. Such an undertaking must involve the Government i.i heavy expenditure, the exact amount of which cannot be determined, which must lead to higher taxation. "Part of Gamble." The following statement was issued: We wish to place on record our opposition to the renewed campaign on behalf of rural interests for currency inflation through the medium of an artificially-increased rate of exchange. Since this question was last prominent, circumstances have changed in such a way as greatly to weaken the plausibility of the inflationist case. It was advocated mainly on the ground that the fall in export prices was temporary and that relief to the farmer —at the expense of the rest of the community —would be sufficient to tide over the brief period before the price would rise. It was, in other words, advocated as part of a gamble on a rise in world prices. It seems clear now that there is no probability of an early rise in export prices, and that the present level must be regarded as more or less permanent. In such conditions, a bounty through exchange manipulations would soon lose any beneficial effect, since it could not be indefinitely repeated without financial ruin. This is one of the principal dangers of the policy, for while perhaps —although it has never been proved —the position of the farmer may be improved, as soon as exchange inflation exercises its normal effect in raising local and import costs, the relief to the farmer will cease, and he will demand more of the same medicine by this process.

Politicians' Plaything. With exchange the plaything of politics, our currency. would finally become worthless, or very nearly so. Theoretically, exchange inflation can be con-, trolled, but inflation, once started, almost always gets out of control, especially when it becomes a political matter.

In any case the working farmer would probably benefit very little. Part of the benefit will go to others in higher charges, but the bulk will go to the banks and stock and station agents, whose excessive credit expansion in the past is one of the main causcs of our troubles to-day. Inflation would thus not put fresh working capital at the disposal of the farmer. It might, broadly speaking, lessen hits debts, a good thing as far as it goes, but why should the community at large be bled through exchange manipulation to build up for the financial institutions bad debt reserves that they did hot have the wisdom or ability to provide for themselves when times were good? This is to what the policy in effect amounts.

A rise in the rate of exchange will heavily increase the burden of the Government and local bodies in making remittances abroad of principal and interest on external debts. Exchange inflation means that a larger sum is 10 bft found for debt services measured in New Zealand currency out of rates and taxes. Since taxation is stretched to the limit and exchange inflation, by its disastrous effect on business, will reduce the urban taxable capacity still more, it would appear impossible to finance our oversea debt commitments with an inflated exchange.

This might easily lead to a total or partial default on overseas commitments and a complete loss of credit in London that would do irreparable damage in the future.

Ottawa Spirit Ignored. Exchange inflation means the imposition of a super-tariff against outsiders, Britain included. It is thus contrary to the Ottawa agreements, and constitutes a deliberate breach of faith with the Mother Country. That will weaken our position in British business circles. How the exchange inflationists can in almost one breath demand an artificially raised rate and at the same time call for a downward revision of tariff is difficult to see, but self-interest is stronger than logic. j The exchange rate and the policy of determining it should, 'as-.; bpth the Prime Minister and the .Bank of New Zealand have stated, be a business and financial and not a political/matter. , It should'be determined by .the' state" of the Lofidon balances, and not by political' pressure by powerful. interests., or' calculations of voting strength,.. Once finance becomcs the toy of politics^' corruption is ultimately inevitable, and additional uncertainty is imparted to business, thus destroying confidence and retarding recovery. The way out of our troubles does not consist of further political expedients, but of giving industry and commerce a chance to develop as far as possible without further political interference.