DISPROVING HIS OWN CASE

Evening Post, Volume CXVIII, Issue 8, 10 July 1934, Page 6

DISPROVING HIS OWN CASE

• The Prime Minister presented a strong case for the greater part of the Coalition policy during ihe economic crisis. Reasonably he asked: What prophets foresaw the course of events, and what wiser course could the Government have taken with no precedents to guide it? But on one point—-and that, perhaps, most important of all—Mr.Forhes's defence was plainly weak. He could not avoid reference to high exchange, but the apology he, submitted was worse than no reference at all. Summarised, his arguments were: that the Government took all the information and advice that was available before coming to a decision; that a bonus would have piled up debt and the benefit to the producers .would have progressively declined; that exchange has helped the farmers and the additional income has been passed oil, thus. benefiting the general eonv muhity; that "Britain was off the gold standard before we took the step, all the European countries had depreciated their currency, including our important rival in dairy products, Denmark"; and that."it can be demonstrated from the Government Statistician's figures relating to a wide variety of prices that the rise in the rate brought no appreciable change for the worse in either the cost of living or costs of production." Not one of these arguments will bear close examination. Their fallacy, .indeed, demonstrates how complete was the Government's mistake.

The Government took information and advice, but it disregarded, .that which was against high exchange. The Secretary to the Treasury on the Economists' Committee reported strongly against'the inflation; the banks, with one exception, opposed it, and there was the strongest op: position from localbodies and commercial organisations.; The objection that a bonus would have meant borrowing applies also to the exchange bonus. Though importers, consumers, ratepayers, and taxpayers., have paid^part of the cost there yet remains a substantial debit, a floating debt which .will have to be v met either by funding *or by using the windfall of gold profits. That the benefits will grow less with time is more.true of exchange than of a direct bonus. N(? economist will dispute that benefits derived from depreciation are transitory. In the meantime the farmers may have gained something at the expense of the rest of the community, but when it is said that by passing it on they have compensated the community there is loose .thinking. Importers, consumers, taxpayers, and' ratepayers have paid the whole sum. Is the shopkeeper to give thanks because he is compelled' to contribute, 20s and is promised that the recipient will spend 15s of it with him?. .= Britain certainly left the gold^standard.^ So did we with her. Our currency depreciation was not to keep pace with Britain but to be. 25 per cent, ahead of her. Denmark did not, depreciate her currency fully till the New Zealand decision was announced, and it is fair to assume that New Zealand's action helped to force Danish depreciation and thus intensified competition in the British dairy produce market. The claim that depreciation has involved no appreciable change for the worse in the cost of living or cost of production may be literally correct, but it does . not give an accurate statement of all the facts. Before the exchange was raised the cost of living was falling. The exchange rise stopped that fall and deprived consumers of the benefit to which they were entitled and which they had been told would accrue to them through wage and interest reductions. We showed at the time that this would be the effect by comparing the greater fall in living costs in New Zealand under 10 per cent, exchange with that of Australia under 25 and 30 per cent, exchange. Moreover, Mr. Forbes overlooks the fact that subsequent' interest Reduction and conversion schemes should have brought living and production costs still lower. They have not done so because exchange<has mopped,up the benefit. Summed up, the Prime Minister's arguments are reasons against that right-about-face which he now attempts to present as proof of his courageous concern for the community. His change of mind, after most definite and emphatic declarations, ,did great harm by undermining confidence, and apart from this it resulted in the greatest mistake which the Coalition Government has made.