The Dominion. FRIDAY, JANUARY 15, 193. FARMERS AND EXCHANGE RATES

Dominion, Volume 25, Issue 94, 15 January 1932, Page 10

The Dominion. FRIDAY, JANUARY 15, 193. FARMERS AND EXCHANGE RATES

. There should Question “ « tte whatever advantage to them there ay not ish the farmers position. The rest of the comm y e appre hensive may to stand bail for it, a result that the farmers are pp arise out of the operation °? the “ m P fairest and best that the From every point of Y ie VL ° nearly .possible to its true or exchange rate should be fixed as nearly as poss natural level. , .. te should not fluctuate . It is desirable however that he rate .widely over short periods but that the lo best advantage so that the available cr^ ts ’J J & the preS ent arrangement for over the whole year. For that rea s ° , P stand< The farmers mobilising export credits , s h° . accru j ng from such a wise themselves should appreciate the gains accruing husbanding of overseas funds. . 0 { supply and If fixation of the rate were left to the tree the^sh o{ demand over short periods, it nug; below it while in the the export season credits would faH to par off season, when the farmers < d obtain little benefit. They prices might rule from which t y ~ . tbe e „„ and other marare well accustomed to.the: lea | exchange market. It is to glut °at C due season Tnd a famine at another and to see that the demand for London funds is eveny ™PP motive of main . " atU ThA wls a r s°uggeSn in the addresses by farmers’ representatives at Wednesday’s deputetionTo ‘^ S P ™ as overseas payments for interest, freights, insurance and other items. At nrcsent therefore, New Zealand is close to achieving a true trade , i 10 oer cent exchange rate is probably a fair measure XfcSX short. P How long.it will rcmarn so is another problem on which events are already working. There is also a widely cherished proposition among the producers that whether ormot it is-justified by the trade balance, the exchange Jate should be pegged at an artificially high level as a measure o as istance to the farmers. It would be well first to recognise his as a nroposal for inflation with all that it implies. It may also be admitted that in the first place and in the short run the balance of advantage would be with the producers, whether primary’ or secondary, and agXt the creditor class and all those in receipt of fixed income, nr wacres as well as the Government and importers. K But such an engineered high rate would have other consequence, in the long run. It would return the farmer higher paper prices at once but it would not raise real or gold prices Now the core of h. problem is to bring costs into relation with prices. Some progress has been made in the reduction of costs but that movement would be arrested and costs in many directmns wouid tend to go higher high exchange rates were imposed. . So almost at once the initia advantage would begin to diminish until m the end it vanished altogether. A high exchange could therefore be regarded as only a cushion, quickly flattened out, against the downward bump of prices. Moreover it would not be a solid foundation on which to build an enduring structure of prosperity. +t, P On the other hand there are just as strong arguments against the exchange rate being pegged below its true level. If an artificially high rate means inflation, so just as truly does an artificially low rate mean deflation, with effects just as inequitable as the reverse proces . Therefore when the farmers ask that the rate be fixed at its true level, they are asking for what is fair and just, and their policy is sound. Economic laws are to be allowed to operate; there is to be no tinkering with the exchange mechanism.. But when they go f urther and ask for an’arbitrary fixation at a high level, they are starting a train of consequences that in the’end must injure themselves as well as others and they are asking the Government to initiate a process which in its reverse application they, would hotly denounce and rightly—as unjpst and as class favouritism. From the foregoing it is plain that the Government is faced with a first-class issue in whose settlement every class and every. individual is interested. It is for the Government to remember that it represents all classes and to hold the balance evenly. The exchange rate should be adjusted on supply and demand to what, experience has shown to be the true level over a period. Such a fair adjustment can best be made when command is held of the available funds and the Government will therefore be well advised to continue its pooling arrangement, thus husbanding credits and minimising inequalities. .