EXCHANGE PROBLEM

Manawatu Standard, Volume LII, Issue 71, 23 February 1932, Page 6

EXCHANGE PROBLEM

TRADER’S VIEWPOINT. “PEGGED” OR FREE RATE? • Another view, that of the trader, in connection with the exchange oontrm versy was expressed to a “Standard representative by the head of a leading Palmerston North trading firm, today, in an interview in which the probable effect of a high exchange rate as detrimental to the community generally was stressed. _ , ‘‘l was very much surprised £t the decision the Chamber of Commerce made at their meeting last Thursday ( j"f cr “ noon,” this gentleman said. ‘They were strongly of the opinion that there should be no cut in wages, while they carried a resolution in effect to increase the cost of all imports by 15 per cent, or 20 per cent., thereby increasing the cost to the individual by at least .20 per cent, to 25 per cent.,- and reducing the value of wages by that amount. They also strongly advocated that there should be no interference by the Government with exchange so that the farmer might profit by 15 per cent, or 20 per cent., but that the Government should interfere with rents and the rate of interest, and that the incomes of all those who have saved money and are depending on the interest thereon should be reduced by 20 per cent, or 25 per cent. . “This question of exchange,” he added.- “is a very involved one and_it is difficult to estimate the incidental drawbacks of a very serious nature which may also be brought into effect, so that on the balance the community may be the loser and not the gainer. The fanner certainly receives more for his produce, but the rest of the community have to ‘pay the piper.’ All imported goods would rke in price by 25 per cent., • also the farm produce consumed in the Dominion, so that the wages which the Chamber of Commerce affirm should not be touched would be reduced in value by 25 per cent.; in other words the £1 of wages reduced by the 10 per cent, cut equals 18s, and by the raised price for goods is lowered in value by 25 per cent.—the wage earner is left with 13; 6d in the £1 of his former salary. The men and women who have been diligent and saving and are living on their means are by the resolution of the chamber to bo asked to take , 20 per cent, less for their money, and pay 25 per cent, more for their goods, so their actual income is reduced to 12s in the £l.

CONTROL BY THE BANKS. “The rise and fall of the exchange has always been arranged by the banfc, all acting in unison, and regulated by the law of supply and demand of money required to nuance New Zealand trade balances on the London market,” the trader stated. “Not long after the rate of exchange was fixed by the banks at 10 per cent, tho Government came along with their financial troubles saying : ‘lt is not suitable for list to raise a loan on the London market at present; instead of sending all the money received by you for Now Zealand produce back to New Zealand we wish you to let us have 14 millions to pay the interest on all Government and local body loans, and we shall repay you in New Zealand.’ The banks said: ‘All right, but you must agree to control ah exports and insist that these be financed through New Zealand banks.’ This was agreed to, the result being that the exchange rate remained as it was and the people of New Zealand were 6aved 25 jier cent, in • the 14 millions pounds of interest due, or three and a half millions; so that this resolution of the chamber asks the Government to. find three and a half millions of extra taxation from tho rest of the community, or, in other words, to double the income tax, as this is about the amount which is raised by the Government by this means. The number of those assessed in 1930-31 on incomes from farming is 1108; the number of the rest of the community who pay income tax is 57,809. The amount of income assessed from farming was £96,634, and, from the rest of the community £3,862,875 in the above year. ‘ ‘How would our best customer look at it? Immediately on the back of tbe magnificent gesture of Britain giving a 10 per cent, preference to our butter and cheese our farmers are trying to move Heaven and Earth to increase the price of British goods another 25 per cent! The effect of this will bo to compel importers to buy in foreign markets where this surcharge does not exist, and throw our trade into tho hands of the United States, Japan, Canada, Germany, etc. Take the case of tho importer if the exchange in London is raised 25 per cent.: New Zealand imported from England m 1930 £21,000,000 value; to pay for these goods importers would require to provide £5,250,000 extra. The selling price of these goods would be increased by 25 per cent, or more. The importer would have to offer goods for sale at this greatly increased price, but he would not be able to dispose of them until the market was clear of lower priced stocks bought previously. The only merchants who would be, doing business would be . those who were selling at old prices. Then if the exchange were taken off in two years’ time all the goods on which the importer had paid the high -exchange Tate would be only worth 25 per cent, less, as they would immediately come into competition with goods landed at 25 per cent, less price. He would have to face this loss. Needless to say this would spell ruin for importers. INTEREST ON LAND. “Then the first call on this extra farmers’ income would be their overdue interest payments, and in this connection the remarks of the chairman of the Chamber of Commerce are interesting: ‘lnterest is the first charge upon the source of wealth that comes into this country.’ ‘lnterest is the main item in the fanpers’ costs.’ This I can leave for reply to a prominent industrialist writing in a Wellington paper. He says: —-‘A§ regards the farming costs that are out of step with values, the largest of these is interest, including interest on capital that is now fictitious and nonexistent, and some of which never existed except in the _ optimism of farmers and their indiscriminating financial backers. If a farmer is paying interest on a" 1 farm nominally fworth £IO,OOO, but of which the true value now is more like £SOOO, then half these costs are fictitious, and the proper course is to leave it to the farmer and his mortgagees, bank, and stock agency to adjust the matter and write off the water in the capital. It is a matter for voluntary or forced adjustment among the parties concerned, who presumably entered into their contract* with their eyes open as to future possibilities. The depreciation clamour is simply an attempt by the farmer and liis financier backers to avoid the loss due to overcapitalisation of ‘land values, the result of their own speculative mania, greed of gain. ■ and unwise extensions of credit in the past. The writingdown process would involve some failures. That is inevitable, as farmers who could barely struggle along at the peak of prices—there are probably not a great_ many.—could hardly expect to carry on in a depression without a drastic adjustment of land values. The process would involve little necessary loss of pro-

duction. Some marginal land would go out of cultivation. It is doubtful whether such land has ever paid, ?- but there would not be much, and. there is no reason why production should not be carried on much as usual during a readjustment of values - among the interested parties. \vny should the community have to bear the burden of fictitious land valuesr That is a matter for the parties themselves. One of our most urgent needs is to get land values into touen with average export price productivity, because we depend, and will continue to depend, on the market in Britain, expressed in sterling. Exchange depreciation can only aU best delay this process, to the profit of financial institutions involved. Once they get clear they will suddenly cease to notice the benefits involved in depreciating our currencv. If the interest burden were reduced by direct adjustments among those involved, and other costs were reduced by cutting out the effects of our burdensome industrial arbitration system, then there would be no need for an exchange bonus to help the primary industries round the corner. The burden of proof is at all events on the advocates of depreciation to show the In conclusion, the importer stated that this question is still : unsettled and is producing injurious reaction throughout the whole of the Dominion. “The Government has failed in its duty to adjudicate between the conflcting views. The responsibility has been handed over to a small academic committee. Our leading bankers who have the expert knowledge of this question have been left out in the cold, and one wonders if the Banks will agree to the decision of such a committee, even when it gives its finding.”