WORKERS’ EDUCATIONAL ASSOCIATION

Evening Star, Issue 22087, 22 July 1935, Page 10

WORKERS’ EDUCATIONAL ASSOCIATION

(Contributed.) The recent death of Mr Maden, one of the oldest and most active members of the W.E.A., is a severe loss-to the Dunedin branch of the association. Mr Maden had for some time been a member of the District Council, where his varied experience as a class member extending over many years helped him to contribute usefully to the moulding of W.E.A. policy.' Mr Maden took an active part in class discussions, and by wide reading had further strengthened his own naturally independent outlook. Recently Mr Maden had devoted much time to the work of the drama class, and his co-operative spirit will he much missed. INFLATION AND DEFLATION. In recent weeks the economic class has discussed the causes and consequences of movements in the general level of prices in either direction. Variations in the value of money, it has been pointed out, are most conveniently studied by applying to money the same apparatus of inquiry which is commonly used to explain variations in the prices of ordinary commodities—i.e., supply and demand. If the supply of money increases prices will tend to rise, because some people will have more money to spend. If a commodity is already abundantly supplied, however, no increase in the supply of money will quickly raise its price, for the new money will be spent on something else. Similarly, if the supply of money is diminished prices will "tend to tail, it does not follow, however, that a fall in prices can be explained only in terms of a shortage of money. Prices will also tend to fall if the efficiency of production improves. - If the demand for money increases prices will tend to fall; if it diminishes, prices will tend to rise. The most important causes of variation in demand for money are: Changes in the demand of hanks for cash, due either to variations in the laws • which govern their activities, or in their-estimate of the cash which it is desirable to hold; hoarding by individuals; and changes in .the. sme ce population. Any variation in the general level of prices . .has bad economic consequences. Rising prices diminish the real incomes of people with fixed money incomes and of wage earners, and increase the profits of business men. Falling prices reduce profits, and raise the real incomes of fixed money-income people, while wage earners are better off, provided they can fet employment, and provided wages o not fall as fast as prices. From observation of the evils of rurrency fluctuations in post-war Europe, it was natural to draw, the conclusion that the right kind of price level was one which kept exactly even, moving neither up nor down. The experience in the United States of America immediately before the depression, however, showed that there was something wrong with the reasoning. While her price level remained steady for a number of years she nevertheless felt the depression at least as much as any other country. It was found that the thing which causes the inflation is not high prices as such’, but prices which get out of relation with costs. If prices rise faster than costs, inflationary profits which throw the organisation of production out of gear are the consequence. But it had not been generally realised that a similar situation would arise if prices were kept steady, when costs were falling. Hence the view is now rapidly gaining ground that the right kind of price level is one which falls at the same rate as the efficiency of production increases. Such a downward movement of prices is not deflationary, because it causes no arbitrary transfers of wealth, and does not discourage production. It is a clear advantage to the consumer who gets the benefit of improvements in production in the shape of reduced prices. In general, the producer is not handicapped because the effect of the fall in prices is counterbalanced by a corresponding fall in costs, which is in fact the preliminary condition upon which the price fall depends.