CURRENCY INFLATION

Dominion, Volume 13, Issue 241, 6 July 1920, Page 8

CURRENCY INFLATION

■ ■ ■ AND THE COST OF LIVING. (To the Editor.) Sir,—Mr. Massoy's crihnuo on affairs in general, and particularly on tho question of rising prices (which appeared in a recent issuo of your journal), 6eems to show that our Prime Minister is of the opinion thai currency inflation plays but little part in tho huge price rises of the past two years. Tho statement also indicates that\ho believes, that Government intervention wiK bring down prices in general, for he says: "Tho Board of Trade and the Prico'lnvestigation Tribunal are working hard fo minimise the exploitation of the public by the charging of excessive prices for commodities." Mr. Mnssey certainly stresses tho point that needß so much to bo stressed—the fact that hard work on the part cf nil is necessary in these difficult fnd' trying times. Ho then claims that the main reasons for the increased cost of living afo(l) havoc of war; (2)' the slackening of industrial effort.

Prom this statement I think it is reasonable to assume that he would add profiteering as a third factor in increasing prices, while it is evident'that he regards currency inflation as being responsible in but a minor degree for the high pricea of to-day. '.'- Because I am confident that tho main factor in the unrest caused by high prices is not profiteering—nor the fall off in industrial effort nor even the havoc of wnr—but currency inflation, ond because I deem the present crisis to be tho gravest our country has ever faced, I earnestly urge our legislators to see to it that the (]uestion of the New Zealand note issue is dealt with during the present session. To back up my statement, that prcfiteerin|i plays but little in tho ijeneral high prices of to-dny, let me quote an editorial which recently appeared in "The Now Ago," the official organ of the Enpfish Guild Socialist Group. In discussing hiflh prices, this paper, states unequivocally that if all the profiteering in England were immediately "stopped, prices'would not recede even appreciably, 'so long os currency inflation was maintainod. Further, is it not significant thus far our Government's own tribunals iinve, given no evidenoe that profiteering on any, large scale is going 1 bnr- The best evidence on the point is that given by the Supreme Economic Council, which takes.the view that in general the rise in retail prices •has been less than 'the rise in -vholesnle prices, and that the rise in vh'olcsalo prices is less than tho rise in the'price paid-to the consumer. Abnormal profita have Jieen made in certain articles—and this was inevitable in a. rising mnrkel, ond : with prices placed by Government control, at a point which" would keep the smaller trader nWve. >Tho British Food Controller also said recently: "If it were possible to abolish profiteering altogether, you would not materially affect the present level of high'' prices." '*- i Mr. Massey's point that price increase is in the main due to slackening of industrial effort is not borne out by tho official "Tables of Production, Price Movements and Currency Expansion" published recently by the British Government— these,, figures are' no doubt in tho possession of many, others besides myself. Table 4—Price Movements—undoubtedly proves that currency inflation is the main cause of our troubles to-day. Otherwise, how can we explain tho extraordinary differences shown, in'the comparative rises of wholesale prices from 1913 to 1919 in different countries. They are as follow:—

United States lOC per vent. . . United Kingdom 157-percent. Franco ................ 230 per cent. Italy ; 229 per cent. Table. V entitled "Production," gives the.figures for 1919 for,the world's mam countries as compared with, earlier years, and shows that the fall'off introduction bears but little' relation to the high price increase. For instance, tobacco production is shown to'have increased 25, per cent. Why, then, has tobacco so largely-increased in price?; In short, the theory of reduced production does not explain all the facts, because (1) the fall ■ in production is not sufficiently great to produce such high rises in prices; (2) while reduced production would increase prices it would not produce such widely differing prices in different countries where . production lias ■fallen off equally.' i ' ' The. point is so important that I must labour it by taking another oxamule—ar-'-titdes of vertu—old boots, old pictures, Hire postage stamps, etc. Almost daily our newspapers record huge advances in prices on these articles. Production does not enter the questioiun this ease.' Why, then, have the prices of these things gone up in almost the same proportion as /other articles?—surely because the real reason is currency inflation. Mr. Massey's 6econd argument seems to bo that high prices are,also largely, due to "war indebtedness, but that also, inadequately explains the'facts.- .He points out that the New Zealand public debt has doubled.- But. in '.Russia, whero all public debt has 'been abolished, prices are far higher than elsewhere in Europe. Again, as Lord D'Abernon has f ointed out, in the'times of Ismail Pasha Egypt had a gigantic public debt, both permanent and floating, yet the prices of all necessaries of life were extremely !ow.. Table i of the British Government's figures dealing with increases of publio debt, proves that although a_ factor, war indebtedness is not the main factor in price increase. . For instance, wholeBale prices have increased 111 per cent, in' Japan, .yet'.the. public debt 6tands practically stationary. Wholesale prices have increased by 229 per cent, in Italy, and debt has increased by .£73 per ;head, yet in Great Britain,' where the wholesale price increse is much less—ls7 per cent.—the increase in debt is .£157 10s. par head—more than double that of Italy. Let us face the .facts—the increases inprices are in part due to' the causes mentioned by our Premier, but in the main they are due to.currency inflation. Whilo the British Government's official tables show that the falling .off in production is not more than 20 per cent. on tho averago, the world's paper money has increased '500 per cent, as compared with 1913—and this figjure excludes the huge paper issues of. Eussia, AustriaHungary, and Turkey. The official tables establish this most important fact—thai prices in each country have risen very closely in relation to currency inflation; prices are highest where paper currency has been inflated most 1 would suggest that tho exchange position also indicated this faot. In considering exchange, economists in the past have given too much' attention to the balance of imports and exports, and the usual.view.states that exchange fluctuations are almost eolely due. to the ■differences in demand for remittances and poynients between the countries concerned. But surely the rate of exchange is tho expression of the value of a unit of currency of one country in terms of a unit of currency of another. Thus, if one' country debased its metallic currency by one-half, surely the exchanges would reflect. the depreciation. Over-inflation of paper currency is equivalent to- debasement of metallic currency, and therefore is in part responsible for 'the exchange position now existing. Any talk, therefore, of entirely correcting exchange by increasing exports or reducing imports is a snare and a delusion. Past experience proves this claim, for I notice that in his volume entitled. "Banking* nndCurrency," Sykes shows that the Bullion Coinmitte6 of 1810 established the fV.t that tho depreciation of the exchange beyond gold point at that time "was almoot exactly equivalent to tho currency depreciation" of tho day. May I suggest that' it is imperative that New Zealand 6et up at once a strong commission to investigate . tho matter. Its personnel should include the University professors in economics, with representatives of Labour, of business, of banking and of the Government. • Above all, let us mo to it that men are ..appointed who know something of tho theory of money and its operations. Digressing for a moment, I would suggest that moro should be done to encourngo tho study of political economy among tho public. Only one organisation is now doing this—the AYorkcra' Educational A«Koclntion, with its clnsses'on political economy. For a ss. fee per. season nnyono nan take a three years' course in economics, up to University honours standard, one lecture weekly. No better work naa be done than the spread of accurate knowledge on economics, and with further support by tho Government much more could bo'done. The New South Wales Government gives its Workers Educational Association ■ J!5700 por an-* num. New Zealand has more W.E.A. students than New South Wales, and gives only .£2ooo—none of whioh can- be used for organising.

The position to-day is extremely grave. The wage-earner_ cannot keep pace ivith bouudiiijt prices." Ho loses heart, blames the prohteer, and will accept any theory —notjna-tter how wild—that promises relief. AH attempts to reduce prices in general by Government action or price boards will fail unless tho whole economic fabric is based on a sound and steady set of Talues, and these cannot be scoured while currency inflation goes on. Tho FremjJt havo a pregnant saying: "The guillotine follows ihe paper-money P'<cs—the two machines aro complementary one to the other." In Russia the Revolution was nurtured in currency inflation. Most of the world's revolutions aro associated with currency debasement and rising prices. _ The war leaves us a sufficient legacy of grave problems, and no problem can be rightly solved until the currency question is settled and a policy established. Because there is no factor so powerful as price inflation ir. setting class against class, and in disturbing social relations, I appeal to our legislators to investigate mid deal with the question—l am etc, J: M. A. ILOTT. The Terraoe, Wellington.