INCREASING THE BURDEN

Evening Post, Volume CXV, Issue 15, 19 January 1933, Page 10

INCREASING THE BURDEN

VIEWS OF BUSINESS' MEN

EXPRESSION OF CONCERN

Concern at the agitation for a higher exchange is expressed in a motion passed at a largely-attended meeting of business men in Wellington yesterday afternoon. The motion which was carried unanimously, reads as follows:— That this meeting views with gravo concern the advocacy of thovFarmers' Union in favour of a 25 per cent, ex- , change rate. It considers that the Farmers' Conference is advocating, as some of the members present admitted, a high artificial rate, and that such a rate being a false rate can only be maintained by the Government guaranteeing the banks against losses. Such an undertaking must involve the Government in heavy expenditure, the exact amount of which cannot be determined, and which must lead to higher taxation rates, etc. The following statement was issued by tho meeting:— "We wish to place on record our opposition to tho renewed campaign on behalf of rural interests for currency inflation through tho medium of ■an artificially increased rate of exchange. Since this question was last prominent, circumstances have changed in such, a

way as greatly to weaken the plausibility of the inflationist case. It was advocated mainly on tho ground that the fall in export prices was temporary, and that the relief to the farmer (at the expense of the rest of the community) would be sufficient to tide over the brief period before a price rise. It was in other words advocated as part of a gamble on a rise in world prices. It seems clear now that there is no probability of\ an early rise in export prices, and that the present level must be regarded as more or less permanent. FINANCIAL RUIN. "In such conditions a bounty through exchango manipulation would soon lose any beneficial effaet, since it could not be indefinitely repeated without financial ruin. This is one of the principal dangers of the policy. For a while, perhaps, though it has never been proved, the position of the farmer may be improved, but as soon as exchange inflation exercises its normal effect in raising local and import costs the relief to the farmer will ccaso, and ho will demand more of the same medicine. By this process, with exchange- the plaything of politics, our currency would finally become worthless, or very nearly so. Theoretically exchange inflation can be controlled; but inflation, once started, almost "always gets out of control, especially when it becomes a political matter. . . "In any case the working farmer would probably benefit very little. Part of the benefit will go to others in higher charges, but the bulk will go to the banks and the stock and station agents, whose excessive credit, expansion in the past is one of the main causes of our troubles to-day. Inflation would thus not put fresh working capital at the disposal of the farmer. It might, broadly speaking, lessen his debts, a good thing as far as it goes, but why should the community at large be bled through exchange manipulation to build up for the financial institutions bad debt reserves that they did not have the wisdom, or ability to. provide, when times were good, for themselves? This is what tho policy, in effect, amounts to.. AN INCREASED BURDEN. "A rise in the rate of exchange- will heavily increase the burden of the Government and the local bodies in making remittances abroad of principal and interest on external debt. Exchange inflation means a larger sum to be found for debt service, measured in New Zealand currency, out of rates and taxes. Since taxation is stretched to the limit, and exchange inflation, by its disastrous effect on business, wjll reduce urban taxable capacity Btill more, it would appear impossible to finance our oversea debt commitments, with an inflated exchange. This might easily lead to total or partial default on oversea commitments, and complete loss of credit in London that would do irreparable damage in the future. 'lExchangelExchange inflation means the imposition of a super-tariff against outsiders, Britain included. It is thus contrary to the agreements arrived at at "Ottawa, and constitutes a deliberate breach, of faith with the Mother Country that will weaken our position in British business circles. How exchange inflationists can, in almost the one breath, demand an artificially ; raised rate, and at the same time call for downward revision to the tariff, is difficult to see, but self-interest is stronger than logic. NOT A POLITICAL MATTER. "The exchange rate and the policy of determining it should, as both the Prime Minister and the Bank of New Zealand have stated, be a business and financial, and not a political matter. It should be determined by tne state of the London balances, and not by /political pressure by powerful intorests, or calculations of voting strength. Once finance becomes the toy of politics corruption is ultimately inevitable, and additional uncertainty is imparted to business, thus destroying confidence and retarding recovery. The way out of our troubles does not - consist of further political expedients, but of giving industry and commerce a chance to dedevelop as far as possible without further political interference. In any case, Mfho is going to bear the loss if the artificially fixed exchange rate breaks down?" -