FARMERS' VIEWS

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

FARMERS' VIEWS

"INFLATION AND EXCHANGE"

PRODUCERS' NEEDS

The following statement has been received from the Farmers' Exchange Committee in reply to a recent article in "Tho Post":— Under the heading "Inflation and Exchange" in your issue of Tuesday last you criticise tho statements of the Farmers' Exchange- Committee. Most of your remarks are getting away from^ the point at issue, which is whether under tho arrangements made by the Government with the banks the laws of supply and demand will or will not govern tho exchange rate. You. infer supply and demand will 'govern tho,rate. We say it w m not . Tho Government's Order-in-Council not only prevents outside competition for exchange, but also prevents competition amongst the banks themselves. It is well known that the banks are not in agreement on this exchange question ?? v **' Was the comPetition amongst the banks themselves, as well as competition from outside the banks,, that forced up the exchange rate in Australia. Exchange'is a commodity just the same as, wool, meat, and dairy produce are commodities. If the Government were to take, steps to put wool or meat or dairy produce in the hands of one buyer without tho possibility of any competition, it would be difficult to persuade farmers that they were getting the market value of their produce. exchange placed in the hands of one buyer and all competition excluded it will, be equally difEicult to persuade farmers that v they are getting market value. The, farmers iare,'not accusing the banks of..fixing -the exchange rate for their own" benefit, but they are accusing the .Government of tampering with exchange'for tho "benefit of Government finance and thus putting a load on' tho farmers that should be borne by the^,whole,-coinmunity. 'V- ' ~ - "FABMEis 1 PLIGHT DEBiPEBA!TE M, If' the farmers '.wore, -prospering, or even paying their way^they might not be-so sensitive,, but the plight of thei farmers? is desperate/, Look at the facts. Statistics 'showthat for the ten months ending 31st October, 1931, thel f.o.b. price level of farm produce had fallen ,40 per cent, compaied with the average of the sixteen years 1914 to 1929. While costs> have fallen 8 per i cent, compared with 1929, they have not fallen at all compared with tho sixteen years' average. Farmers cannot continue production.on these lines. What is to be done about it? The answer to that question interests .everyone, and is the main problem the country is. faced with to-day. Farm production is the-base of the economic life of this country. Faim produce is our only export. Farmers' purchasing power is tho base of all our local trade ► and industry. Farmers' purchasing power has gone, and the resulting paralysis is; creeping through every trade and industry in the Dominion. The evidence is fifty thousand unem-1 ployed in the height of tho producing season. What "will the position bo next winter? It is vitai in the interests' of the whole community that the farm production should not fall off. The , only way to prevent this happening is , that conditions should be such that the farmer can pay his way. The farmer has got his costs insido his fences down'.to/puch an extent' that farm maintenance is being "neglected, and this will reflect itself in future farm production. Prices of farm products and farmer's costs outside his fences are beyond his control, and if tho situation is to be saved the rest of the community must come in and help. INFLATION 'DENIED. You seem to think that any widening of the exchange is inflation. It is not inflation. It is the avoidance of deflation with its disastrous consequences. Let us quote a few authorities. ' The Macmillan Beport published last June says: ' "A severe fall in prices upsets the entire balance of every kind of money settlement. It works to the advantage of those whose incomes aie protected by contract or otherwise and to the disadvantage, cither in the form of reduced incomes or of unemployment, of those who receive the residue of the national incoine. If the change in the value of money is largo and rapid the result is chaotic. Extreme hardship and injustice will prevail and great loss to the income and wealth and productive power of the whole community. We think that the recent increase in unemployment in every part of the world, accompanied by a decline in production, can in the main be attributed to the fall in the level of prices, unaccompanied by a proportionate reduction of money costs, however brought about. A failuio by the central banks of tho world to attempt to redress the fall of prices, in our judgment, would endanger tho principles on which modem economic society is founded, namely, the dependence of tho productive process on tho expectation of normal profit to individual concerns and the sanctity iof contract. For to allow prices to fall, whilst social forces -maintain'„wage-costs, obliterates profit; and' the.'attempt to-' reduce non-con-tractual incomes, without tho power to abate contractual incomes immediately, jeopardises both nationally, and internationally tho sanctity of contract. Our conclusion is, therefore, that if a substantial change should become necessary, it must be a general chango and apply, so far as possible, to evciy class of income alike. "If this conclusion be accepted, it follows that it cannot be left to natural economic forces to bring it about by the mere'pressure.of'events. For this would certainly not result in an equal all-Tound change. Theoretically the most obvious and comprehensive method of effecting the desired object would be to leavo money-incomes alone, but to change the monetary standard. This would have the advantage of bringing tho direct, initial benefit to those industries which need it mostly, namely, to the foreign-trade industries. It would involve no interference with contract, since debts are legally fixed in terms' of sterling and not in terms of gold. It would affect every class of income without the necessity of any other special measures. For a country which /was nptvariiriternatibrial banker and was|npt/So:wed large sums from abroadf:^edftin|termß of sterling, this jTvould ,;be.the-/simpleßt solution." • J |fThe;Midiarid Bank—the largest bank ii-the British-Empire—m its NovemberDeceiriber review, says: "It- would seem then that the results of the departure from gold on both current and capital account are likely to be defiinitely favourable. The departure from the gold standard puts our authorities in a better position to serve first the, [interests •of / British production and employment."' If is evident that the Midland Bank considers the devaluation of British currency through the departure from the gold standard was a good thing for Britain. The Bank of New South Wales, the largest Bank in Australasia, in its circular of 17th October last, says:"The high exchange rate is an automatic method of distributing part of the loss of income evenly over the whole-people. It raises the cost of meeting oversea interest obligations, and therefore imposes an additional burden on the Budget. Taking into consideration tho proportion of the amount of the debt i held in Australia upon which the ex- ' change rate is favourable, the net bur- i