EXCHANGE RATE VERSUS SUBSIDY.

Evening Star, Issue 21710, 3 May 1934, Page 3

EXCHANGE RATE VERSUS SUBSIDY.

TO TH* EDJTOtt Sir, —When war broke out Mr Lloyd George appealed to the British public to subscribe to France’s liberty loan, saying it was like lending it to Great Britain. The franc was then worth lOd of British money, there being twentyfour francs to the British £l. When the war was over and the time came for France to repay the loan she had inflated her currency until at last the franc was only worth 2d, and it took 125 francs to make the British pound sterling, for Britain was then on the gold basis. As the loan was repayable in .France the British holder of liberty bonds therefore only received 4s for every £1 lent when the repayments were converted into English currency, as France had pegged her rate' of exchange at 125 francs to the British sovereign. This gave France a wonderful advantage in trade —a 500 per cent, advantage—that made the tariff imposed to protect British goods almost as farcical as it was futile. Perhaps the best illustration of that was during the exhibition time, when the Dunedin City Council called tenders for chassis for motor buses. The British chassis were tendered for (writing from memory) at about £l,lOO, while the tender for a French chassis was only between £SOO and £6OO. Other countries, too, had inflated their exchange rate until the protective duties imposed to protect our British trade were futile. The result was Britain was forced to go off the gold standard to overtake somewhat the high exchange rate of other countries if British Industrie* were to exist at all. Britain has overtaken it slightly, the franc being now worth a little over 3d in British money. The cables recently told us that the Japanese trade unions were asking for improved wages and an eight-hour day, and that a delegate based his reasons for this demand on the increase in trade due to the inflation of the yen. Just after New Zealand inflated her currency i by an increase in the rate of exchange the late Mr Pember Reeve, making an annual statement as president of the National Bank of New Zealand, referred to the inflation, _ and reminded the directors that while the shareholders’ money would not buy as much in Britain as it did before inflation, yet it would buy far more in New Zealand, where the money was invested, than it did before inflation of New Zealand currency. Again, Russia, in addition to advantages inherent in her new Biechanised mode of collective production, has an internal inflated currency based on goods. And yet there are people who de-> mand the removal of the rate of exchange in New Zealand. Such a move would allow goods to be dumped here from all inflated countries. The alternative they put forward is a subsidy, the working of which has not been explained. The removal of the exchange rate in New Zealand would make things worse than they are for manufacturers, and a subsidy may be a heavy burden. For instance, New South Wales pays a subsidy to the wheat farmer, but to raise the money to do that the consumer has to pay IJd a loaf in taxation, which the baljcr must collect. The result is, though Australian flour is the cheapest in the world, the two-pound loaf is retailed for 6d, according to Mr Torpy, M.P.’s speech in Dubbo recently, a copy of which in the ‘ Dubbo Dispatch ’ was sent to me. Would the workers here be content to be taxed on the loaf to pay for the subsidy on wheat? Would they agree to be taxed on butter to pay a subsidy on butterfat? Those who advocate a subsidy must , show how the money is to be raised to pay for it before one favourably considers such a suggestion. It seems to me a subsidy would make things so much dearer that extra wages must be paid to enable the worker to buy the dearer goods if the New South Wales scheme is to be adopted. In New South Wales there is a 25 per cent, exchange rate as well as a subsidy. Many currency reformers are urging that an international currency based on goods bo established to equalise exchanges and to prevent any country having an unfair advantage over another. Until that is done under capitalistic conditions of production the exchange rate must remain while any other competing countries retain their inflated currency.—l am, etc.. Overland. May 2.