FRANCE AND AUSTRALIA

Evening Post, Volume CX, Issue 132, 2 December 1930, Page 11

FRANCE AND AUSTRALIA

CANCELLED DEBT

BY NOTE INFLATION

Because Prance inflated her currency, and restored it at one-fifth'of its former value, causing loss, to internal creditors, and because France has no unemployment, some people say that inflation is a good thing, Others say that a low birth rate is an.excellent thing. But M. Spitzcr, described as vicepresident of tho French Chamber of Commerce, and manager of the Comptoir National Descompte de Paris, stated in Sydney yesterday that "Franco had learnt her lesson regarding inflation. The advantages did not last very long, and then the country would find itself in a worse state than .before." In Australia, where some people (including the Commonwealth Statistician) advocate a certain amount of inflation, they have been consulting the French barometer a good deal, though not much seems to be known. M. Spitzer's cabled statement is didactic rather than explantory. WHY RAPID RECOVERY? At this time, when tho question of inflation of the note issue is a burning one in Australia, tho present situation of France is full cf interest, writes A. C. Wilcox in the "Sydney Morning Herald." France expanded her note issue until the franc fell to almost onetenth of its nominal value, and later, by a tremendous effort, stabilised' her currency at 124 to the £, or approximately one-fifth of tho pre-war value. Yet to-day France has accumulated very large stocks of gold and is apparently still going on absorbing the precious metal. Added to this, she is the one great manufacturing country of tho world where there is no unemployment. Undoubtedly there are here fields of absorbing interest for the economist and tho statistician, and yet, when they have sifted and weighed, and tabulated it seems likely that three main reasons will be assigned 'for her rapid rocovery. Eapid tho recovery certainly is, for it was only a little over four years ago, July, 1926, that the franc reached the lowest point. It was commonly stated when tho franc was tumbling that although the national coffers of France were empty her citizens on the average were remarkably well off. Great manufacturing country as she is, the farmer and the countryman living on the soil are the men that really count in numbers and economic value. The countryman did well in tho post-war years. His produce brought high prices, which • meant for him improved farm buildings, new implements, or increased acreage. From the nature of his calling and the general complete absence of any books of account, taxation rarely reached him. Professional men, too, managed to evade income tax in a way that would be hardly possible in England or Australia. It was currently reported, that in 1926 only about forty doctors in the whole of France returned an income for taxation exceeding the equivalent of £800 per annum. There seems little doubt that the franc ought never to have slipped as it did. The blame must largely rest with her politicians, who would not face up to unpopular financial measures. Stated briefly, the three principal factors of the quick recovery are:— (1) With the franc inflated to and stabilised' at one-fifth of its nominal gold value, France cancelled four-fifths of her national debt, and correspondingly decreased the amount to be paid out in interest. The position is analogous to the business man whs finds himself in financial difficulties, and whose creditors accept a composition of 4s in the £, allowing him to retain the plant and stock. He starts off afresh, with assets which, as a general rule, are capable of returning a handsome profit. Who suffered tho French loss? Everyone who had loaned the Government money when the franc rate was between 25 and 124—that is, all investors in loans issued before 1925. GOLD INFLUX AND WAGE. (2) Tho second factor in her restoration, is tho capacity for hard work of her people, peasants and skilled workmen alike, at rates of pay considerably less than those operating in England, and frequently duriiig longer hours. As every producer knows, the rate of wages is a most important one in determining costs. When the franc was falling steadily, the increase in wages to compensate for increased cost of living, never caught up with tho fall in exchange, and it is improbable that tho average wage to-day is five times what it was in 1914. Thus, tho French manufacturer is at a considerable advantage over the British and German because in both tho latter countries wages are above the pre-war rate. The standard of living and general comfort of workpeople in tho manufacturing centres of Prance is decidedly lower than in England, and, God knows, there are areas in Manchester and Nottingham that are a national disgrace. Another point in favour of lower production costs in Franco is the lower rate of taxation. Unemployed insurance has not to be po.id, and municipal charges find rates are loss onerous. Just here ifc is not inopportune to rafor to tho fight which was waged to determine the ratu at which the franc

should be stabilised. Tlie manufacturing classes were in favour of fixation at the greatest figure possible—lCO to the iS was much canvassed. That figure would have helped them materially with foreign sales, as well as allow them to liquidate their stocks more advantageously. They also feared that if the figure we.re made, say, 100, it would bo much more difficult to reduce wages to that price level. They were probably very wise in their contention. The pressure on M. Poinearo- to make the rate 100, or even less, came from holders of rentes or Government stock, mortgagees, wage-earners of all kinds, annuitants, and all those in receipt of fixed incomes. The outcome was in reality a compromise. That the decision was sound seems beyond doubt. The influx of gold to Paris and no unemployment tell their own tale. (3) The last factor is the amount of German reparations France is now receiving. With a .considerable portion of internal debt cancelled, some external debts (i.e., some war loans raised in England) equally reduced in value, heavy reduction in ilio total of her indebtedness to Great Britain, German reparation payments heip to balance the ledger. "DABE WE FOLLOW?" In the light of France's experience, is there anything to justify inflation in Australia as a possible way out of our difficulties? It must be carefully noted in the first place that inflation cannot assist us in paying external loans or interest. We have contracted Jo repay our debtß and interest in London or Nfew York. Consequently, we have to find British sterling, not Australian, md dollars, in New York. However much we inflated, external debts arc quite beyond ■ our interference, and must be paid/ or repudiated. A resort to inflation would certainly make the burden of internal debts lighter, but who would suffer? Every depositor in a. savings bank, everyone 'who lias a life policy or annuity, every investor, however small, in a loan to an. Australian Government or municipality, everyone who has loaned money on property or other security. We should also brand ourselves as a, people quite unable to learn from the experience of others, and consequently unworthy of trust. The last section of the community who ought to listen for one moment to talk of inflation are the wage-earners. It has been urged over and over again that our edsts have to come down. The simplest way to reduce wages costs is to inflate the currency, for real wages come down then automatically, without resort to Arbitration Courts. Do the advocates of inflation in the Federal caucus realise this? If they do not, they are blind leaders. If they do, they aro deliberately deceiving those they profess to serve. Which arc they? If wo brace ourselves to meet our difficulties in the right way, we shall retain the confidence of thoso able and willing to help us. The cables have already reported that Mr. Scullin was making substantial progress in this direction, when the wild talk at Canberra put a check on negotiations. Surely, there ought not to bo a moment's hesitation as to which is the right path to take.