FARM INCOMES AND COSTS

Evening Post, Volume CXXII, Issue 67, 16 September 1936, Page 6

FARM INCOMES AND COSTS

THE PRICE OF DEVALUATION

(To the Editor.)

Sir, —I fail to see that 1 misinterpret Sir William Hunt's, statement of August 24. He said: "The farmer's purchasing power is his farm products, and what interests, him is not'so much the price in money that he gets as the exchange parity of his produce-for the goods and service he requires." Sir William knows that approximately 85 per cent, of farm produce, is exchanged for goods produced outside New Zealand, and therefore valued by the sterling pound for the purpose of exchange with New Zealand farm pro-, duce. Surely then to attain at least parity in the exchange we must restore the value of the New Zealand pound to parity with the sterling

pound. Sir William tells us that the value of the New Zealand pound is depreciated 51 per cent. from 1914 value, while that of sterling is depreciated 39 per cent. Will he seriously say that with a fall in value of 51 per cent, the farmer, whose produce is valued by that pound, gets more out of the exchange than if the New Zealand pound had only fallen to 39 per cent? Surely not. He also warns us against what he terms "tying the New Zealand pound to sterling." Unfortunately for New Zealand this is quite impossible. In view of past experience I would make the value of the New Zealand pound the sacred trust of the Reserve Bank.

In a recent interview the Minister of Finance inquired of Sir William Hunt if he claimed that on today's prices farmers' incomes were below their costs, and the reply was "I do." If this then is the position the farmer today is no better off with high prices than he was in 1933 with low prices, and there must be something radically wrong with the unit of exchange, and this is due to the low value the New Zealand pound bears to sterling. Had the New Zealand pound not been devalued in 1933 by 25 per cent., which to the consumer meant a loss of purchasing power nearer 50 per cent, there would have been less need for the Government today to make up this loss in increased wages and other charges. The farmer must realise that he cannot dissociate ■ himself from the economic consequences of the policy of the country in which he plays bo important a part. Sir William.' still seems to entertain the illusion that farmers' interest payment by some miraculous means escaped the boomerang effect of the devaluation of the pound, but how could interest be exempt? If the pound that values farm assets and incomes is devalued, then in justice to the farmer the value of all his liabilities, including his mortgage, should in like manner be reduced, and the failure to do this was equivalent to an increase of 25 per cent, in farmers' interest. The devaluation by 25 per cent, of the-New Zealand pound did not assist' the New Zealand farmer, but rather assisted his Australian rival' to compete with him in the London market. Goods produced can only be sold at a profit if the cost of production is kept below the income derived from the sale. The high protective tariff, to encourage the growth of uneconomic industries in Australia, has so raised the cost of producing primary goods in Australia as to rob the Australian primary industry of its profits and send the discouraged Australian farmer into the cities seeking employment, but as the secondary industries have failed to build up an export trade they fail to furnish the necessary London credits to meet Australian overseas commitments. This shortage of London funds, plus inability to borrow, drove down, the value of the Australian pound in London and the devaluation of the New. Zealand pound to the low level of the Australian pound, thus raising the New Zealand farm costs about which Sir William now complains, prevented New Zealand farmers taking advantage of the Australian position. In reply to the reference to the British stabilisation fund, and Holland and Switzerland, let me say that in each case the ; aim is to prevent, not to encourage, the loss of .value in national currency. Had "the New Zealand Government followed British policy it would have vigorously resisted any attempt to devalue our pound. i I accept the challenge to name the) rate "New Zealand on London" at which New Zealand notes for sterling' could be effected, namely, not worse than parity. I also accept the responsibility to give effect to this rate. I would do so by compelling the Reserve Bank to function within the limit of its own Act and by using the great power vested in it, backed by the entire national credit. Give sterling in exchange for its notes at a. rate not more nor less than will effect that exchange. See section 16-3 Reserve Bank Act, 1934, and Amendments. Twentyfive per cent, is a rate that has checked exchange being effected. This'rate is therefore in conflict with the authority of section 16-3 of the Act. I am as little interested in what other countries are doing as they are in New Zealand's policies. All I.wish to see is the restoration in New Zealand of money guaranteeing to all I those who use it fair exchange in what they receive for what they give. Let the farmers demand this and the payment of wages to those they employ, giving a decent standard of living, will present no difficulty. This is not a dispute between importers and exporters. Their interests are allied. Great Britain may even prefer New Zealand to go to 50 per cent, below sterling rather than to sterling parity, because of the fact that while New Zealand is a. big factor in supplying her with food and raw. materials, she is a small factor in the purchase of British goods, and an -. exchange against New Zealand is in favour of sterling. Fairness in currency value-is the Government's first duty to the people, however, irrespective of what others want. When will our Government: awake to its responsibility and defend our national currency against devaluation at the expense of the public? This is a matter of great importance to the people of New Zealand and their future welfare.—-I am, etc.,. -. -' • - J. HISLOP.