MAJOR PROBLEM

Evening Post, Volume CXVIII, Issue 65, 14 September 1934, Page 10

MAJOR PROBLEM

COSTS AND PRIMES

SPREADING THE LOOSES

After reviewing the possibU ities of controlling the price level, tli" c Committee states that the major j iroblem facing the country is the rai sting of prices so that costs may be cow Mod. "But we do not want all pt tecs to rise," states tho report. "In g uneral, manufactures and particularly iv imported goods have a level of prices- which even the manufacturer .or in importer would be satisfied with if he> could get volume of sales. We como in.vevitably to the problem of the pairviijs of tho' products which New Zealaw 3 produces. Wo may take cheese ~'a,b an cxamplo typical of the New i^nland products which are sold oversea .3. If tho price falls in London, tho teni 1 ency is for the price to fall in New Zealand tho domestic price being A reflection of the English price. I!" the English prico for cheese wero 9<l per pound and we raised the New Zes land prico to Is 6d, the domestic ml ukct would become glutted with chee«i —;95 per cent, of which is usually expu rted. Of course, some authority would intervene and attempt to fix the supply* of all milk products for tho local mairj.tet; otherwise a retail price of Is 6d' per pound could not bo sustained. This involves control, of distribution if mot of production, and, as such, is mew than a monetary problem. "Excluding buildings and other eaj V--tal items, the proportion of New Ze. %■ land's production 'which was exporto «1 during the five years 1928-29 to 1933-S 13 was,4s pojr cent. During the sajl ie period 35 per cent, of local products m locally consumed, (corresponding to '. '-]0 per cent, of total New Zealand prodii etion) had its price governed by pridj is ruling for New Zealand produce :,tn overseas markets —that is, of our to^jid production, the price vof 65 per cent, i 5 governed by what we receive, for ouji produce overseas. Since tho price oil! such a substantial proportion of our1 production depends directly on an external factor, and since a greater proportion still of our economic life is. affected by these overseas prices, it means that unless tho prices of exports!, rise, the internal situation will bo help-* ed very little by monetary action alone. "As far as New Zealand is concerned tho obvious practical monetary policy to pursue is to spread any loss (duo to low prices for. exports) over^

Now Zealand as a whole. Some action is necessary- which will mitigate tho effects of both falling and unduly rising export prices if stablo conditions aro to be desired. In the past tho course- of ovents consequent on a drop in export prices has been a drop in tho purchasing power of tho farmer, a drop in retail sales, in business activity and prices, in wages, in employment, uu<l fiually in imports .'Did transport activity. Tho depression begins withi tho farmer and finally roaches tho importer and tho shipper. Tho problem is to substitute an even flow of imports and business activity for violent fluctuations. Appropriate action as to credit conditions seems to bo the only purely banking solution. Controlled exchangeratu movements are also -a potent monetary instrument. EFFECTS OF INFLATION. "Some attention has been paid to the subject of inflation of tho currency because a substantial proportion of tho schemes submitted to tho committee have involved this procedure Inflation is a process difficult to define and the subject has become somewhat threadbaro of late, but at the same timo we feel that it is noeessary to show cloarly what are tho logical implications of schemes which involve the unlimited issue of crddit for financing1* Government or other expenditure. Furthcwnoro, to insist that our economic ills aro mere 'bookkeeping difficulties,' and can bo solved by giving tho public a certain number of 'finely engraved acknowledgments on watermarked paper' is to blind them to the realities of the situation and to divert discussion from the basic problems of our civilisation.

"Apart from being an arbitrary and, if carried to extremes, suicidal method of taxation, currency inflation carries with it several major economic and social evils. It alters the distribution of wealth and distorts production. All contracts made in money arc generally based on the assumption that its value will remain comparatively stable. In vestors both loso the initial value of their investments and suffer from the fact that their income from investments is fixed^ in terms of money. In this way Germany wiped out her internal' debt by so depreciating the mark that it beeamo worthless. Those who held mortgages, bank deposits, or investments of the stock or debenture typo, lost their savings. The result is that both the capacity and the will to save have been taken from the community. . To the wage or salary worker inflation is N definitely detrimental. As the cost of living keeps ahead of wages, the worker has his standard of living reduced. Those whose salary is fixed for long periods suffer still more, unless they belong to a 1 strong trade union or professional organisation. Inflation is a blind force with an almost inevitable tendency to rob the working groups of the community.