INFLATION RISK

Evening Post, Volume CXXV, Issue 144, 21 June 1938, Page 10

INFLATION RISK

LABOUR FINANCE

WHY INVESTORS ARE NERVOUS

ISSUING OF NOTES

The recent statement of Mr. Savage that it was intended to make New Zealand's purchasing power equivalent to the value of the country's production was referred to by Mr. C. H. Weston, K.G., president of the National Party, a& a political meeting at Kilbirnie last night.

.There were yells of approval from the back of the hall when Mr. Savage's name was mentioned, and Mr. Weston's subsequent remarks were frequently punctuated by exclamations from all over the hall.

."I.want to refer to Mr. Savage's constantly reiterated statement that he means to make New Zealand's purchasing power equivalent to her production," Mr. Weston continued., "It would almost appear as if the right honourable gentleman does not quite realise what he; is saying. At present the Dominion's currency is based on a sterling exchange standard, just as Australia's and India's are. This system, gradually evolved from the actual circumstances of the Dominions and India, is based on two facts. The first is, that we do a great deal, if not most, of our shopping overseas; we buy from, the United Kingdom, U.S.A., Canada, Australia, and Japan, etc. j The second is, that when we buy overseas we must pay cash; once we get away from the shores of New Zealand there is no such thing as credit, we have to pay cash on the nail. Accordingly, credit in New Zealand is not of full use unless we can cash our cheques in London, the world's clearing-house. It, is of no use to us unless we can go tp. our banker and say, 'I have £ 125 ly?ng to my credit here; I want you to give me the equivalent of it in cash in London.' Of course, the banker cannot do it if he has no cash in London. The only cash we can provide in London is from the sale of our produce overseas and from loans raised overseas. But Mr. Savage cannot fix the price of our produce overseas. The foreign buyer gives us what he thinks it is .worth, not what Mr. Savage thinks. Consequently, if the sheep farmer is given 2s for his wool in New Zealand by Mr. Savage, but only Is in London by the foreign buyer, the 2s in New Zealand will only be worth Is to him in London because he cannot use the extra Is overseas. "We should therefore have a depreciated currency In New Zealand which is the technical term for inflation; and inflation means sorrow and misery, not for the. rich man, of whom, by the way, there are very few in New Zealand, as the unemployment tax returns show, but for the labourer and the man and woman living on small incomes. No wonder the London holders of our Government bonds, many of whom are widows and trustees for others, are nervous and the values are receding." NO DETAILS GIVEN. Mr. Savage had not given any details about his money scheme, Mr. Weston said. Excess of money did not meet falling values. Mr. Savage proposed to give a price in New Zealand that bore no relation to the overseas price. The sheep farmer's wool had dropped from Is Cd to Sd. That meant a drop of £5,000,000 in the national income and Wellington was feeling the effect of it. He had heard that one hotel in Wellington had shut up two floors. (Applause and cries of "Tell us the name," and "Name it.") How was Mr. Savage going to replace that £5,000,000? Mr. Weston asked. "A voice: How would you do it? "Where will Mr. Savage get this £5,000,000 from?" Mr. Weston asked. A voice: Where would you get it if there was a war? • Another voice: Sell some potatoes. AIRY TALK. Some Labour supporters airily said the. money could be got from the Heserve Bank, Mr. Weston said, but the only way to get money from the Reserve Bank was to borrow it and Mr. Savage said he did not borrow. All ! Mr.'' Savage could do was to issue notes and that meant inflation. Mr. Ormond ! Wilson, the Labour M.P., had suggest- ; ed raising the exchange rate, but what would the Labour supporters say ■ to:;that? When Mr. Savage said he would produce money pace with production he was talking arrant non- ! sense.

A voice: That is better than talking >ut of your hat.