WOBBLING MONEY

Dominion, Volume 23, Issue 296, 10 September 1930, Page 9

WOBBLING MONEY

Stabilisation Schemes CAN WE HELP OURSELVES? A Plan Worth Looking Into ii. (By A.N.F.) With an unstable currency dislocating its trade and threatening its producers with serious repercussions it is o£ the utmost importance to New Zealand to discover whether there are any practicable steps it can take in self-protec-tion. Many schemes for money stabilisation have‘been put forward and it is worth recalling that in 1919 our late Board of Trade "earnestly recommended’’ one to the serious attention of the Government. , • . _ .. At that date the trouble was inflation with its soaring prices. We are now learning by bitter experience that de flation has even less to offer than infla tion. The rising prices of an inflationary period have at least the merit ot creating a temporary business boom tin til the crash comes. Deflation oners nothing at all. It enriches all creditors at the expense of all debtors, and as tne debtors are mainly the producers, manufacturers and business men generally this means that the wealth of the community passes from the active, people who are doing things to the inactive who are merely drawing interest. In the case of a debtor country, such as New Zealand, needing capital for its development, it means that a far greater portion of its produce than was contemplated has to be given for the use ot that capital. . Deflation s Ills. That is the position when deflation has been effected. The worst thing about deflation, though, is that while it is taking place the falling prices which accompany it kill industry. IL 18 7“}? to buy on a falling market with stocko and raw materials depreciating one’s eyes, and the result is that trade languishes and unemploymen stalks abroad in the land, becoming ever more intense as the process continues. After the war a policy of deflation was deliberately entered upon in Britain with the object of restoring the pound sterling to its pre-war purchasing power. This proved impracticable and those m authority satisfied themselves with getting buck on to pre-war parity between the pound and the dollar. This was achieved iu 1925 when the gold standard was restored on the recommendation of a Currency Committee, whose members were Lord Bradbury. Sir Otto Niemeyer, Professor Pigou, and Mr. Gaspard I’arrer. This committee anticipated that the return to gold would involve “a fall in the final price level” of a "significant though not very large amount.” but, it predicted, "any disadvantages will be many times outweighed,” and, furthermore, past experience hud shown that “a courageous policy in currency matters surmounts apparently formidable obstacles with surprising ease.” Some Prophecies. Mr. Churchill, in announcing as Chancellor of the Exchequer the restoration of the gold standard, declared that we were far more likely to have a stable price level on gold than off it. Professor Gregory, now visiting New Zealand with Sir Otto Niemeyer, wrote at this date: “Within a single decade the value of paper money has fluctuated sufficiently to ruin whole social classes. Nothing of this sort is to be feared from gold.” Sir Felix Schuster, president of the British Bankers’ Association, predicted that the “benefit of stability and security” would outweigh any "temporary drawbacks.” The stability foreshadowed by these authorities has not so far been forthcoming. Mr. McKenna, in his annual address as chairman of the Midland Bank in January, 1925, pointed out that in 1922, 1920, and 1924 the British pound, though then a managed paper currency had been more stable in purchasing power than the American gold dollar, and it was much more stable than it Ims since been on a gold basis. In Mr. McKenna’s view the policy of deflation pursued in Britain has been mainly responsible for the prolonged trade depression and unemployment which has afflicted that country. A Modem Invention. In his annual address in January of this year Mr. McKenna did not go into currency policy, stating that as a member of a Government committee appointed to inquire into the matter he considered it would be improper for him to do so. However, significance may possibly attach to the fact that he pointed out that the gold standard, contrary to general supposition, is really quite a modern invention. Britain only adopted it a little over a century ago. and until so late a date ns 184-1 she was the only country on it. One of the merits of the gold standard, as Mr. McKenna pointed out some years ago, is that a nation with a currency convertible into gold “feels more honest.” and that “so long as nine people out of ten in every country think the gold standard the best, it is the best.” Although the results of getting back on to gold may not have come up to expectations. Britain had very little option in the matter. The public demand was for a return to gold. and. internationally, to have remained on paper, would have meant a lowering of British prestige abroad. Having got back on to gold the problem is to discover how we can save ourselves from being ruined by the fluctuations in its value. America Moves. This matter has been the cause of considerable concern in the United States, where a Stable Money Association was recently formed, not for the purpose ot advocating any particular scheme of stabilisation, but solely with a view to •- public attention in all countries ou the problem. Omong its officebearers are Mr. Owen D. Young, chairman of the last Reparations Commission; 111. Moreau, Governor of the Bank of France; Mr. McKenna, Sir Henry Strakoseh, Sir Charles Addis, Mr. Otto 11. Kahn. Professor Kemmerer. Professor Irving Fisher. Sir Herbert Holt, president of the Royal Bank of Canada, and innumerable other men of similar standing in almost all countries of the world. The object of the association is to promote research and education on the problem of securing greater stability in the purchasing power of money, and it is also distributing much literature. Its headquarters are at 104 Fifth Avenue, New York City. . In a former price slump period in the United States the late Mr. Bryan became a national celebrity after a famous speech, in which he declared that the farmers and common people of America were being “crucified on a cross of gold. As Unde Same is now sitting on top of the biggest pile of gold every collected in the world, he naturally cannot afford to see gold currencies behaving so badly that other nations cannot remain on them. For if these nations adopted some other medium of exchange, America s colossal gold heap would have hardly any value except in so far ns the dentists wanted an ounce or two for stopping the teeth of people who could not afford porcelain, and so on for other purposes. America may well consider its interest is to have gold high in value, but not so high as to ruin its debtors. Stabilisation Plans. Many plans have been put forward for money stabilisation. Mr. Maynard Keynes, for instance, has been a leading advocate of getting off the gold standard altogether. Professor Lehfeldt wants international control of the world's goldmines. ' that the supply of gold can be regulated solely with a view to keeping it stable in value. Professor Ir-

ring Fisher for twenty years or more has been advocating that the sensible thing to do is to keep a currency stable in purchasing power but variable in gold. More conservative people are of opinion that the best way to stabilisation is for the heads of the world’s central banks to work together in their credit policies witli a view to maintaining money at a stable level. The only one of these plans that has anything to offer Xcw Zealand is Professor Irving Fisher’s. So far ns the others are concerned it is simply a case of sifting back and hoping that the financiers at the other end of the world may some day be pleased to do something to get us out of the mess they have got us into. An Advocate of Self-Help. Professor Fisher, on the other hand, is an advocate of self-help in monetary matters. In a recent book. “The Money Illusion”—which, by the way. is dedicated by permission to Owen D. Young, and to which Sir Josiah Stamp gives his blessing in a foreword —Professor Fish er deals in a very practical way with the money problem. After dwelling on the importance of the money factor in fluctuating price levels and the evils caused thereby, he devotes a chapter to discussing what individuals can do in self-protection, another to what banks can do, and a third to what Governments can do. Individually. Professor Fisher pointout, wo can keep much better track of where we are getting to financially if w» pay more attention to the price index, particularly in carrying forward fixed assets from one balance-sheet to 00011101-. and many other such operations. \V p can also contract out of money fluctim tions, though in this we need to lie dor’ ing with some one of a like mind Some Experiments. Instances are given of recent commei cial bond issues in the United Statein which it was provided that the re turn should vary as the price index went up or down. In Europe during the cur rency crisis some banks took deposition the basis of returning to the depositonot the same amount of money that in put in, but an amount of money thin would buy the same amount of rye a> the amount deposited. A statute of Queen Elizabeth required that college land rents should be in part expressed in terms of wheat and malt, and two centuries later the third so expressed was worth double the two-thirds expressed in money. From 1780 to 1780 the State of Massachusetts issued bonds on which interest and principal varied according to “five bushels of corn, sixty-eight pounds and four-seventh parts of a pound of beef, ten pounds of sheeps wool, and sixteen pounds of sole leather" cost more or less than £l3O. (To be concluded.)