PAPER AND PRICES

Evening Post, Volume CX, Issue 134, 4 December 1930, Page 11

PAPER AND PRICES

INFLATION IN SHOPS

WHY PRICES RISE

With moro paper money in circulation there would be more buying. With more buying—the result of more paper monoy-vtho seller would demand, and the buyer would give, more paper. Iv other words, prices would rise. How, then, would the tradesman replace his stocks? If he sold existing stocks at old prices, and proceeded to buy now stocks at now prices, there would bo a vacuum, and he would be a loser. If ho raised his prices on existing stocks to meet replacement cost, lie might cease to be a loser, but would bo called an extortioner. Under the heading "If Inflation Comes" (which is unpleasantly like "If Winter Comes") Gerald Kobinson thus discusses the issue iv tho "Argus":— SAFETY IN SPOT CASH. With - inflation in progress each sectior of the community would have its own problems to solve. The aim of everyone would be to maintain such a position that- when the .inevitable stabilisation, occurred ho would be no worse iff than before. Few would achieve this—certainly none -of those who sold on credit. . With a constantly rising price level and a constantly depreciating currency cash trading would be imperative. Dealers in foodstuffs —meat, bread, butter, milk, and so forth —would probably suffer least. Their supplies would bo bouglit largely from day to day. So long as they sold for spot cash they would have a reasonable chance- of surviving. They would be accused of profiteering, of course, as their prices continued to rise. Shopkeepers handling other classes of goods—for example, clothing, drapery, boots, hardware —would bo in a very difficult position. This would apply particularly' to smaller traders. Such people, as a rule, do not fully realise tho importance of replacement cost when pricing- thoir goods. They are apt to work on tho prineiplo of adding a' fixed percentage, say, 25 per cent, to 50 per cent., to tho cost of tho goods. An article costing 20s may ordinarily bo sold for 25s or 30s. Under a stable currency this system may work reasonably well. With continually rising prices, due to inflation, it would bo disastrous. UNCERTAIN PAPER EQUIVALENT OF GOODS. The first result of inflating the note issue is to stimulate buying. There is more "money about." Business "picks up." During the previous dull period the small shopkeeper has boon anxious to reduce his stock in order to improve his cash position. Hence ho may not increase his prices* quickly enough. He nia-y sell, say, £200 worth of goods before considering tho question of replenishing stocks. He-may find, that tlio new goods will cost in depreciated currency more than he received for tho original stock. In that event he will have suffcrod' a loss, and ho will also bo out; of pocket for all his business expenses. . ■ Neither ho nor anyone else can tell how much further the currency will depreeiato, nor how rapidly. Even if he be aware of the overwhelming importance of, replacement cost as tho basis of selling prices, he cannot bo certain what that cost, will be. It may vise overnight. Ho can only . guess. His competitors are in tho same fix. The less astute or the more optimistic continue to sell at prices which prove to bo insufficient to cover replacement cost. Business degenerates into speculation. Thero is no salvation in selling the wholo stock and going out of business. That would merely leavo the trader .with paper money, growing less valuable day by day. He must bear in mind that ho is selling his goods for notes which have a smaller purchasing power than the notes with which lie bought thoso goods. Obviously his safest course is to curtail sales on those lines difficult to replace, and to charge the highest possible prices. His stock would be worth something in tho end, but paper money might bo worth nothing.