FINANCE AND COMMERCE.

Press, Volume LXIX, Issue 20904, 11 July 1933, Page 11

FINANCE AND COMMERCE.

IVARYING VALUES OF MONEY. PROPOSALS FOR REFORM DISCUSSED. PROFESSOR IRVING FISHER'S BOOK. (bPtiyiALL7 WHITTIS FOR THE TRESS., |£y PROFESSOR ALLAN G. B. t'LSHEK.] Professor Irving Fisher has long been known both to economists and the general public as a persistent and persuasive critic of the evils, social and economic, resulting from fluctuating money standards. The proposals for reform associated with his name have not been so widely accepted, but it is his persistence (aided no doubt by the hard lessons of bitter experience) which to a large extent deserves the credit for the gradual emergence into the consciousness of business men of the fundamental fact that reliable business and economic calculations are impossible so long as variations in the value of money remain unchecked. In his latest book. v Irving Fisher associates his views of money more closely than hitherto with the problem of booms and depressions. He elaborates here a theory of the "business cycle," centring round the influence of variations in indebtedness. The outstanding fact in a trade depression Is over-indebtedness. OverIndebtedness can seldom be measured absolutely; it is always relative to circumstances, but if for any reason over-indebtedness appears, variations in the value of money are likely to intensify the consequences to such an extent that what by itself would have been merely an Inconvenience may become the cause of universal distress «nd social and economic disruption. Causes of Falls in Price Levels. -Over-indebtedness, arising from Whatever cause, is likely to lead to distress selling. Embarrassed in meeting their liabilities, people are compelled to liquidate portion of their assets. Such forced sales directly depress the price level, but because the proceeds of the sales are used mainly for the repayment of loans, the amount of deposit currency, according to Fisher, is contracted by the same process, so ■ that the price level falls still further. This reacts unfavourably on the debt situation, for in spite of the repayments, the real burden of the residue of debt is likely to exceed the burden of the original debt, because the value of the money units in terms of which the debts are expressed is rising. Falling prices reduce the money value of business assets, while liabilities remain fixed, so that businesses are forced into bankruptcy. Tha shrinkage in profits, which is ••mother aspect of the same process, discourages production, which is motivated by profit, and encourages the pessimistic outlook which exaggerates the real significance of all the unfavourable factors In the situation. Loss of confidence further slows down the velocity of circulation of money. and while money interest rates fall as a result of the declining demand for capital, real interest rates actually rise, because the fall in the money rate is insufficient to counteract the losses inflicted by the necessity of paying interest and repaying capital at a lower price level, when the value of the unit of money has increased. All these evil consequences, it is argued, follow directly from the fall of prices, which is initiated by the original forced selling. 'lf the liquidation were prevented from bulging the purchasing power of the dollar, all the other depression consequences (except as to money interest) would be forestalled. Practically the only evils then would be the disturbance in the debts themselves and in their money interest; and these would be relatively tame affairs. Of a depression a3 wo know it, there would be little left." Irving Fisher then offers a factual account of the present depression in terms of his theory, and outlines remedial measures designed first to raise the price level, and then to keep it stable. The remedial measures are for the most part of a kind familiar to students of currency reform, relying upon the regulation of the interest rate and" central bank open market operations to increase or diminish the supply of the circulating medium as the price level shows a tendency to fall or to rise, though there are also some suggestions of a more novel kind. A Valuable Analysis. It is valuable to have an analysis such as Irving Fisher provides of the depression in terms of the intricate interrelations between indebtedness, movements in the price level, -and variations in profits and in production. Nevertheless it is doubtful whether he has in this book made any important new contribution to the solution of our present economic troubles. It is urgent that bankers and other con-servatively-minded persons, who sincerely believe that, because no "legitimate" demands for credit are being refused, the banking system has no responsibility for initiating action to lead us out of the depression, should receive instruction about the responsibility of the credit structure for price fluctuations. But they will scarcely be convinced by Irving Fisher, because he tends to brush aside as unimportant the other factors in the situation on which they are accustomed to dilate, and though their anxiety to maintain their own complete innocence leads them to exaggeration here, the structural defects and strains in our present organisation are undoubtedly of fundamental importance, quite apart from the monetary factors which they neglect. After all, the fundamental question remains, what caused the over-indebtedneas In the first place? Irving Fisher gives an answer to this, which so far as it goes is satisfactory, but he shows little appreciation of the fact that falling prices are themselves in part a consequence of the unbalanced character of production in a much more intimate way than would be suggested by a consideration of the influence of forced sales in contracting the volume of deposit currency. To the extent to which the downward movement of prices is the Inevitable consequence of the structural dislocations which have preceded it, it is dangerous to attempt to check the movement by mere currency control, without at the same time rectifying the original dislocations. Stabilisation. Those who are already converted to the need for currency stability and who agree that a policy of credit expansion must be an important part of any rational programme for recovery will be disposed to criticise Irving Fisher on other grounds. Stabilisation must mean stabilisation of something. The older currency reformers were often (though by no means unanimously) disposed to favour stabilisation of the wholesale price level, and tv«n those who were cautious, and inclined to insist upon the necessity for P»ying attention to "other factors. 'Booms and Depressions. By Irving Fisher. Mien and Umvin. 232 PP<Bs 6d net).

LONDON WOOL SALES. MR DEVEREUX'S REPORT. PRICES HARDENING. (VSttXD I';!r,S3 ASSOCIATION—IIT KLKCTP.IC 'VGMSGRAPH—COFYSIOSIT.) LONDON, July 9. Mr W. p. Devereux (representing the Australian wool growers) reports that postponement of the stabilisation of currencies and the fear of inflation in the European countries appear to have stimulated competition in wool, since the opening prices for merinos at the London sales have further hardened. Fine crossbreds have also benefited, but medium and low sorts are slightly irregular. Competition is very keen, with British buyers predominating, closely followed by Germany. There have been very tew withdrawals. Quotations in the industrial centres have all risen in sympathy with London, the demand for crossbred tops increasing, especially for medium qualities, and prices hardening. Yarn prices moved against buyers, but spinners cannot obtain the full advance. Machinery activity is well maintained. The gradual improvement in the French industry continues, and there is less unemployment. Prices have moved up in sympathy with the raw material. Sales of tops in Germany are well maintained, especially merinos, at improved prices. A substantial decrease in the stocks of tops is anticipated. The Continental future.; markets are active, and quotations have advanced. OPTIMISM IN AUSTRALIA. AUTHORITY'S HIGH HOPES. (Received' July .10, ">.' M p.m.i SYDNEY, July 10. Mr A. K. Trethowan, a leading authority on pastoral questions, has warned wool growers not to sign agreements with speculators who are touring the country until they see how the market will go in August, when the new series of sales will begin. He is of the opinion that the opening sales will be at least 50 per cent, ahead of those of the previous year. He added that the improvement in meat prices was most encouraging. The value of mutton in England had doubled in three months. As a result, fat stock selling at only 8s to 9s a few months ago were now fetching 20s to 2Cs. [Mr A. K. Trethowan. M.L.C., a farmer and grazier, is chairman of the New South Wales Country party.J AUCKLAND GAS COMPANY. IXTEIft.M DIVIDEND. ITIIE PKESS Special Service.J AUCKLAND, July 10. The directors of the Auckland Gas Company, Limited, have declared an interim dividend of 2} per cent, for the half-year ended June 30, on fullypaid shares, and a proportionate amount on contributing shares. The dividend will be payable on August 1. The company paid an interim dividend of 3 per cent, and a final dividend of 2i per cent., a total of 5i per cent., last year. The dividend was 7 per cent, on both issues in the previous year, and 8 per cent, prior to then. IThe net profit of the company in 1932 was £22,090, plus £45,000 transferred to taxation reserve, compared with £78,815 in the preceding year, or £11,72 d Jess. The transfer was to build up the taxation reserve sufficiently to cover two years' income tax. The payment of the dividend of 5J per cent, necessitated drawing £3t»,783 trom reserves, reducing these to £449*1 The capital of the company is £1,124,9tja.l CITRUS FRUIT EMBARGO. DEPUTATION TO MR COATES. (raras assou&tioii telejuim ) WELLINGTON, July 10. Replying to a deputation of Wellington retail fruiterers protesting against the embargo on Australian citrus fruits, the Acting-Prime Minister (the Rt. Hon. J. G. Coates) said that the matter was still under negotiation, and he regretted that no definite statement was possible yet.