MONEY AND PRICES

Manawatu Standard, Volume LII, Issue 307, 25 November 1932, Page 5

MONEY AND PRICES

CONDITIONS IN NEW ZEALAND, j

‘‘The blunt truth is that monetary obligations and costs are proving too rigid to bend to the level to which prices have broken,” stated Mr W. Machin, of Christchurch, in an address to the Oamaru Chamber of Commerce yesterday on “Money and Prices in New Zealand.” “The alternatives, therefore, are either to drift along a policy of laissez faire until sufficient capital has been lost and production has sufficiently declined, and shelves are sufficiently empty, and markets sufficiently bare of goods and costs are sufficiently low to justify the world in getting profitably busy again; or to plan deliberately to use this excellent export income of ours in New Zealand, while we have it, to bring our economic machine into nearer balance. In* other words, to devise an orderiy system of bringing our own money down in value and prioes up so that their disparity , may become less wide and troublesome. ' I do not consider this to be impossible, j I consider it can be done in such a; manner as to accord and connect with ! any future increase in our internali price levels, and work itself out with-' out inconvenience or disharmony should our price index rise to, say, ! 1929 levels. It cannot bo done with-1 out the inevitable general decrease j meantime in our former standard of | life, but from such a lower level it i would provide the soundest and most speedy- means of regaining our former standard and may be exceeding it. HOW MUCH DO WE DESIRE RECOVERY? “The question is, however, do wo all sufficiently desire such equilibrium and balance as may set all our industries going again, to tread an unorthodox path to obtain it? Would the moneyed , classes and salary and wage earners I agree to drastically decrease the pur- j chasing power of their money in terms

[of New Zealand commodities and British sterling and gold for the general Igood? Would the opposition by those who still consider their monetary position secure be too great? Noarly j all the economists in the world are I saying this adjustment of money and 'prices must come about. “The London Chamber of Commerce memorandum on monetary policy : which was submitted to the Ottawa Conference is a powerful appeal for planned adjustment of what it calls ; the false measure between money and commodities. _ From sucfi a conservajtive body this is a very strong state:ment; ‘every nation, with the exception of the United States and France, has been steadily contracting its currency. In this way, the number of available tokens has been reduced, and thus, by making them scarcer, they have been made more valuable in j terms of commodities.’” I SUGGESTED INFLATION ! After recounting some of the arguments for and .against a high exchange ,rate, Mr Machin continued: “I am ; convinced that everything points to j the remedy of a dilution of our money I —together with other related remedies j—and we might as well use the word — ; for inflation. The outstanding objection to inflation is the difficulty of ! controlling it. This should not be diffi,cult in a British community. The [secretary to the New Zealand Trea- • sury has recorded that there are orj thodox means of depreciating the cur- | rency. If he has an equally effective plan on orthodox lines, possibly control would be made easier. This might be the outstanding function of the Central Bank which is proposed; in | fact, the injection of a regulated dilution into our credit and currency might conceivably be the main present reason for its institution. THE ETHICS OF ADJUSTMENT. “Are these proposers ethically justifiable?” Mr Machin asked. “Is it j right for the State to use inflation | which will have the effect of modifying the present results of previous contracts? Obviously the State alone can deliberately alter the value of the unit of currency. This is not a responsibility that can be attached to the trading banks. The reply seems to be that the present unprecedented and continued fall in prices has already altered the equitable fairness and soundness of most contracts. It was surely never contemplated by a farmer that in terms of his products his interest would be doubled in 1930 to 1932. None could have foreseen that a large proportion of our workers would be dismissed from employment in these years, because monetary obligations fell out of balance with resources in goods. No mortgagee could have foreseen that he might lose his interest and be prevented from recovering his security by the law of the land, and, in fact, have his mortgage security made valueless by law, because of this disequilibrium. After months of thought I cannot believe it would be a.n injustice to partially remedy this inequality through monetary policy. This would be, in my opinion, an act of partial restoration of a disaster which has been borne too long already by some (and which has irretrievably ruined others so that they cannot have restoration) and which should now be shared by the whole community of our' Dominion, for the general benefit of the whole.”