AUSTRALIA'S STRUGGLE.

Auckland Star, Volume LXIV, Issue 172, 24 July 1933, Page 6

AUSTRALIA'S STRUGGLE.

EXPERIENCE UNDER HIGH EXCHANGE.

(By ECONOMIST.)

More than two years have passed since Australia embarked upon its policy of liigli exchange It has been a period of strenuous effort. For the Governments, the banks, the business people ami the primary producers it has been an uphill struggle, which is not yet ended; and it can be scon now that Australia in these years has undergone a great trial of strength. The success attained so far has won admiration from abroad and has been claimed bv some as proof of the merits of exchange inflation; but it should be borne in mind that the Australian 'experiment is much more than manipulation of the currency. It represents a well-balanced national plan, with a definite objective and definite means of reaching it. The co-operation of seven Governments was necessary. With Budgets weighted heavily on the wrong side early in 1031 they pledged themselves to reach a state of balance in three years and to take whatever steps were needed to restore conditions to normal in all States of the Commonwealth. Although the adjustment is not yet complete, it is well advanced. Evidence of the progress in past year is contained in a collection of documents just published in a book by Professors Shann aijd Copland.* These two writers have been called upon in the past year or two to do much important work as economic advisers and have an intimate knowledge of the course of events in Australia since the depression began. Tile earlier phases they have described already in "The Crisis in Australian Finance" and "The Battle of the Plans"; and their latest survey is confined to the period of financial reconstruction from November, 1931. As they state, the book reflects the "doings and thoughts of a year during which Australians felt their way towards a new set of prices, and new terms on which to resume activity in both internal and external markets." They show that unity lias been introduced into the Fcdc.al and State iir.ances, and that there lias been a remarkable rise in Australian credit abroad. Solvency has been preserveel in the national finances, and the economic and social life lias been consolidated. Two vital features in this change have been: Firstly, a general overhaul in State finances; and, secondly, the maintenance of employment in the towns as well as in the country. These points should be noted in New Zealand, where there is a tendency to subordinate everything else to the one aim of raising the prices of primary produce. In Australia the exchange weapon was used not with a view to raising prices substantially, but to keep tlicm steady and to check the etisastrous fall. Primary producers were the first to benefit, and manufacturing, firms gained, also, through the diversion of trade from imports to g.oods made within the country. This stimulus to manufactures could lie extended further in Australia than is possible in New Zealand, or any other less industrialised State, and such an extension eased the shock on employment. Is it possible for New Zealand to provide work to the same extent for those who are put off through a lecline in the import trades? This is one of the rrucial questions which arises in any attempt to :1 raw conclusions from the Australian example. Another point which leaps to the eye in a survey of events across the Tasman is that the Australian Governments have not been called upon to pay one penny piece to the banks on account of iiigh exchange; yet the New Zealand Sovernment is committed to pay an indemnity if a million or more. The explanation of this iifTcrenee is that the exchange in Australia's case ivas absorbed in the ordinary wny, and that the trade situation and the balance of payments justified the rise; but New Zealand faces the probability of a lop-sided trade which will cause in accumulation of .crcdits in London beyond the power of the banks to carry them. All through the book there runs the general idea that the device of raising the local price level by lifting the rate of exchange i* beset with lansrers unless it is accompanied by other important adjustments. * "The Australian Price-Structure, 1032, Confllninir Documents which Illustrate tlie Phase of Financial Reconstruction, November, 1031. to Novemicr, 1032, with an Introduction by E. O, G. Shnnn ind D. B. Copland, C.M.G." (Angus and Robertson.)