WOBBLING MONEY

Press, Volume LXVI, Issue 20025, 5 September 1930, Page 12

WOBBLING MONEY

WHY PRICES FALL. GOLD'S EVER-CHANGING VALUE. IS STABILITY POSSIBLE? (SPECIALLY fniITTES FOP. TH2 TRESS.) [By A.N.F.] That the present -world-wide fall in commodity prices which has brought Australia to the verge of bankruptcy, and is leaving a trail of disaster and depression around the whole globe, upsetting the calculations of business m9u and producers in all countries, and making past promises to pay given sums of money, at future dates impossible of fulfilment —that this phenomenon, of such vital interest to all of us, is due to a fluctuation in the value of gold, is now generally recognised by the world's leading bankers and economists. It is easy to see variations in the value of commodities, but; changes in the value of money are difficult to see. We all live under the spell of the "money illusion"—the illusion that money remains stable in value, whereas goods are eternally changing in value. Even in Germany in 1923, when a million marks, equal in pre-war days to £50,000, would not suffice to buy a postage stamp, not more than one or two Germans in a hundred had any conception that the mark had depreciated in value. They could see the prices of goods soaring colossally, and for this they were ready with all sorts of reasons, but to them the mark was still the same good old mark it had always been. To-day we are faced with a move of the, price level in the other direction. Nearly every commodity has fallen, and fallen heavily, in value. All sorts )f reasons have been advanced to explain .the fall in price of each particular commodity, but when everything declines in value when translated into terms of gold, it is pretty obvious that gold has appreciated in value. This unhappy state of affairs is very different from what was predicted by those who, after the war, were so Btrenuously advocating that Britain should re turn to the gold standard. From Aug ust, 2914, to April, 1925, Britain was off the gold standard'; there was an immense issue of paper money, and prices soared. It was urged that the only way to secure stability was by a return to gold. This was achieved by a great forcing down of prices until pre-war parity waj obtained between the pound and the dollar—an achievement, by the way, Otily made possible by a thirty per cent, decline in the purchasing power of the. dollar itself.

Falsified Predictions. All sorts of things were predicted as a result of this return to the gold standard. We would, we were told, get back to a currency that had a definite intrinsic value, and a new era of stability would be ushered in< As an example of the predictions of this period it is interesting to recall the case of the New Zealand exchange on London. At the Imperial Economic Conference in 1923, Sir James Allen made strong complaint of the basks charging 30s per cent, exchange on London in face of the. fact that the rate in pie-war days had remained stable for years at 17s 6d per cent. The matter was referred to an expert committee under the chairmanship of Sir Charles Addis, one of Britain's foremost bankers, and a direc- ' tor of the Bank of England. This committee reported that the high exchange of 30s per cent, was due to Britain and New Zealand being off the gold standard, and that the exchange would automatically right itself with a return to gold. The return to gold was made five years ago. To-day the exchange is not 30s per cent., but 100s per cent. The: above is but one of innumerable , predictions of the advantages of returning to the gold standard that have been falsified by the event. The fact of the ,matter was that when Britain returned to gold in 1925 it was under totally ' different conditions from those obtaining before the war. Half the world's monetary gold had passed to the United States, and what this has meant was lucidly analysed by Mr Reginald McKenna, chairman of Britain's Midland Bank, the biggest bank in the world, in his annual addregp to the shareholders of that institution two years , ago. After referring to the enormous powers of. the United States Federal Beserve Banks 'in expending or contracting credit,' and how they could at will put the dollar on or off the gold standard by calling in from the member banks th« Government golS certificates backed ■ by .200 per cent, of gold , and issuing in lieu Federal Beserve notes that need

not be backed by more than 40 per cent, of gold, Mr McKenna reached the conclusion that to-day the value of the .dollar controls the value of gold, not the value of gold that of the dollar.

A Dollar Standard. Thus we get the position that the value of the pound is controlled by. the value of gold; the value of gold is controlled by the value of the dollar; the value of the dollar is controlled by the United States Federal Reserve Banks; • - and on top of this we find Mr H. Parker Willis pointing out in the Australian * "Banking Eecord" that the Federal Beserve Banks are now controlled by a very small group of American financiers indeed. If this diagnosis is correct it means that this small group of American financiers by sending the dollar up or down can affect the whole world price , level. Professor Gustav Cassel, of Sweden, a much-quoted European economist, in an article in the London "Financial Times," recently went so far as to assert that the present price slump was due to the policy pursued by the United States Foderal Reserve Banks in checking the New York Stock Exchange speculation last • year. If the gentlemen in control of these institutions had kept; their eyes more, on commodity prices and less on Stock Exchange securities the world, in Professor Cassel's opinion, would have' been in a much healthier condition to-t 1 ' /. There is not the least doubt that our present troubles are 'mainly due to the . fact that the world's' monetary system is in -a. mess. _ No automatic value attached to Britain's gold currency todajv It is a "managed" currency, and there is very little evidence that . those who manage it are concerned primarily with the interests of the British Empire. Sir. Josiah- Stamp, head ' of Britain's Midland Bail way, and a director of the Bank of England. H»s expressed the opinion that money, which '■in its modern development has itfade our present civilisation possible, may well i, destroy it. he considers, de^

ponds on our ability to stabilise it in purchasing power. This problem of the P l-10-1 level Sir Josiah Stamp holds to be the most important single problem of our age 4 —more important than Capitalism, Socialism, unemployment, taxation, or any other problem, because fundamental to them all. How Britain is Injured. Every farmer in New Zealand knows how the price slump has completely altered the ratio between his income aud his liabilities. What this change in money values means internationally was the subject of interesting comment bv the London "Statist," last month. Britain's debt fo the United States, it pointed out, was funded at £945,205,000 in 1923. Since then'£35,755,000 has been paid off, making the amount outstanding £909,452,000. The price level in 1923 was 133, to-day it is 93. Tie debt remaining to-day is thus equal to £1,231,253,C00, at the 1923 level. That 13 to say, Britain owes £289,051,000 more to-day than she did when the debt was funded, and she is deeper down the drain than ever she was. Such is the comparison between the dead-weight of the American debt today and at the date of funding. If we go further back to the time when the debt was incurred, we shall find that to discharge it at to-day's price level would require about three times as much in commodities as the debt represented when contracted, and it is in commodities that it must be discharged. Does this represent justice? According to the head of Britain's biggest bank it ia "repugnant to every principle of equity and economic propriety." A monetary system which yields such results is not only an imperfect system, but it is fast reaching the stage of becoming an unworkable system. The wartime inflation ruined millions of persons all over Europe with fixed incomes. Now, in its turn, the post-war deflation threatens ruin to all debtors.and debtor countries. Is there a remedy or must we drift passively with the stream? WOOL DEMAND. OPTIMISTIC OPINION! Mr Duncan Carson* chairman of Winchcombe. Carson, and Co., woolbrokers, Sydney, assured shareholders in his company thdt the problem today was not so much finding markets as meeting them. Referring to the wool industry, Mr Carson said that the most satisfactory feature in the past Australian season was the fact that tho season's clip was sold. The upsetting effect of a large carry-over was thus avoided, and sound hopes were raised that wool would continue to find ready buyers at prices within specified limits. From a seasonal viewpoint tho fntiirp of the wool industry was far more promising than a year ago. In New S<?utb Wales and Queensland, the two States in which the company was chiefly interested, pastoral conditions were generally more favourable. Queensland was likely to produce the largest clip in her history. Experiences of x ,he past year proved that an ample demand for wool was available, provided the price was reasonable. . The trouble during the past twelve months had been the fact that tho cost of production had been too high, and alt the legislation passed lattefly had tended to increase the cost.

Wool for China. Tfye sale of Australian wool to China will, it is expected, be increased as a result of on iirrangement between the New England. North, arid North-West' Producers Company, Ltd., of New South Wales, and the Australian China Corporation. Ltd. Wool taken by the corporation under the agreement would be of high quality, and would be mixed with the finest Chinese silk to produce silk and wool goods of the first quality. MAHAKIPAWA GOLDFIELDS. Mr K. M. Barrance. manager of tbe: Alexander mine on the West Coast, will arrive at Mahakipawa on Monday to inspect and report on the pros-; 'pects of the mine, which is"now being unwatered for the purpose. USE OF HOME PRODUCTS. CAMPAIGN STARTED IN ONTARIO. (rsiTxa foxes ibsocjatio*—nr electeio TEMSOBAPB—COPTWOHT. »

(Received September 4th, 11.20 p.m.)

VANCOUVER, September 4,

At Toronto, the Premier, Mr G. H Ferguson, yesterday launched a campaign to promote the use of Ontario farm products. He deprecated the use of peaches imported from Australia, which, he said, were grown and transported with the aid of a Government subsidy.

SYDNEY MARKETS. (TOIIEB PBJESB ASSOCIATION*—BI ELECTRIC TKLEOBAPH- COPY3IGHT.) (Received September 4th, 8.45 p.m.) SYDNEY, September 4. Wheat—Cargoes , are dull. Bulked 3s 4d, bagged 8s sd. Flour—£9 10s. * Bran—£6 ss. Pollard—£6. /Potatoes—Tasmanian £6 to £B, Victorian £6 10a. Oat« —White 4s, Algerian 4s 4d. Maize—4s 6d. USE FOR SKINS OF DEER. [TEX PRESS Special Service.] DUNEDIN, September 4. When so much is being heard about the deer menace it is interesting to come across a suggestion for turning to acoount the skins of these enemies of the back country farmer. A member of the Dunedin Chamber of Commerce was recently shown a pair of gloyes made of deerskin. The deer was shot in Otago and the skin was sent to a firm in Christchurch, where it was tanned and a pair of gloves of excellent quality were manufactured at a moderate price. It would seem that there are possibilities for an extension of Dominion industries in the direction of manufacturing not only gloves but golfing jackets, which have also been made ut> from deerskins. Many skins which are now destroyed could be made use of for these and other articles, and in addition to this asnect something would be done towards the relief of the unemployed.

HAWARDEN STOCK SALE. A (sir number of formers attended the H.v warden fortnightly sate yesterday, but the only business dono In live stock was the sale df . 180 . aoimd-mouth ewes, with 120 lambs, at'lit 10d.aH counted. A cow and a horse Ver* afftred, bat were not sold.