INFLATION AND EXCHANGE

Evening Post, Volume CXIII, Issue 25, 30 January 1932, Page 12

INFLATION AND EXCHANGE

The Farmers' Exchange Committee to-day makes a lengthy reply to our recent article on inflation and exchange. In opening its statement the committee says:■■ <- , -.•-,,...,., : ,

Most of your remarks arc getting away from the point at issue, -which is iVhether under the arrangements made by the Government with tho banks the laws of supply and demand will or will not govern tho exchange rate.

It is curious and even comical to be accused of side-stepping the main issue by a committee which purports to reply to our1 arguments and makes no attempt whatever to answer most of them. Some of the points which we submitted were: (1) The misleading character of the committee's [propaganda; <2) Australia's en|deavours to attain the same end by a voluntary pool rationing, import embargo, and tariff surcharge; (3) the probability of diversion of funds and imposition of a burden on New Zealand generally by outside speculation in exchange; (4) Mr. David Jones s advocacy of a higher rate when the market was free. To these points no reply is given. A further point made was that statistics showed that Ndw Zealand last year had a visible trade credit balance of £10,340,070. To this the only answer offered is that the figures m-e unreliable. Neither we, nor the Farmers Exchange Committee, are able to check the accuracy, of' the returns; but we'prefer to accept, and we think the public will r accept, ' official returns rather than rough compilations and haphazard calculations by a' propagandist. committee which wants the figures altered to fit its arguments.' The committee says in effect: "This is''our contention and if the figures do not prove it we will alter the figures." But the committee cannot evade the fact that the exportl surplus, plus the London loan of over, £5,000,000, did not warrant a 10 per cent, exchange throughout last year. The farmers received their premium because it was not thought advisable to remove the check on imports and thus retard the accumulation of London funds.

Without fuither attempt to answer our arguments, the_Farmers' Committee submits is own contentions, which are briefly: (I) That the exchange pqoli prevents competition and the operation, of the law of supply and demand; (2). that the widening of tUe exchange, is not inflation; (3) that ~the farmer's plight is desperate and he must be helped by this means. We do not deny that there is some check upon competition, but 'it is principally upon that'outside speculative competition which puts a heavy surcharge on .every individual in the country. So long as there are separate banks operating in" New Zealand, all with .exporting and importing customers, it is absurd to suggest an analogy in placing all'produce in the, hands of one buyer.' "It'ls riot inflation (states the committee). It is the avoidance of deflation with its disastrous consequences'.' Let us quote a few-authorities." ..Two, of "the authorities quoted are the Macinillan Report and the Midland'BanV-both excellent authorities if their statements, had any bearing on this question. But they have not. The writer of. the statement' must have known when he quoted the Macmillan Report that its whole tenor was to secure a reasonable restoration of the price level for the benefit of all sections by international action through the central banks. This is the very opposite of what the committee is seeking—separate and open inflation by one tiny unit of the British Empire for the benefit of one class at the expense of the rest. The Midland Bank's approval of British departure from the gild standard is equally irrelevant. It does not imply approval of permanent departure or suggest that anything but a temporary benefit is likely to accrue-from inflation. l ,it' :;• - The committee'has much <to say of the plight of the farmer. With the emphasis laid upon his need we, can agree., We can agree further that a rise in prices would benefit the farmer and all New Zealand. But that does not commit us to support an artificial rise, a bonus wholly at the expense of New Zealand taxpayers and consumers. An exchange premium must be paid by the people of this country—not by ■ overseas buyers. , The, inflationists'argue that the farmer's position would be improved and the position of.all'other sections would improve correspondingly. If the rise in piice came from overseas this would be so; but it cannot be so when New Zealand must pay it. It is arguing that the Government is benefited if it gives the farmer £1 and receives one or two shillings back in taxation, and the merchant is benefited if f 1 is taken from him to give to the farmer and the farmer spends part of that pound' with him. But t the committee says nothing of who is to ,pay the price. Mr. David Jones was rtiore candid when he advocated an increase' in exchange (when there was unquestionably a free market). "If our,imports cost more (he said), then the importer and consumer in New Zealand should pay the full price." We do, not argue that importers'and consumers should be shielded or-subsidised;'but'j^e think that control, is essential in such a crisis as we face to guard the whole country against speculative operations which might quickly impose a disastrously crushing burden on the whole Dominion. Inflation can never cure our troubles: At the best it,is only a dragging palliative which will leave us with an aggravated malady! Much has been made by advocates of high exchange of the benefits' which this has conferred on Australia. We are expected to believe that, if adopted in New Zealand, this method would make it possible to collect more taxation.' to .coyer the cost of exchange on overseas, payments, that more money would be spent, and unemployment reduced. If these promised benefits are to accrue how do the high exchange advocates explain the grave warning is-

sued by the. chairman of the Commonwealth Bank'to the j Loan Council? According to a table message to-day, Sir Robeff Gibson wrote that the floating debt was assuming such proportions as to cause the Bank Board the gravest apprehension.

Unless, measures are adopted to deal with tho situation (he stated) the present monetary system and financial resources of the country must break down under the strain, resulting in the most serious financial consequences. It is needless to point out that tho board cannot control the situation except by refusing to provide national finance.