MONEY AND BUSINESS AFFAIRS

Manawatu Standard, Volume LV, Issue 303, 20 November 1935, Page 6

MONEY AND BUSINESS AFFAIRS

FALLACIES OF THE INFLATIONIST. GUARANTEED PRICES. (By H.J.K.) The guaranteed prices policy that is being voiced by Labour candidates at the present election campaign, though devised purely for electioneering purposes, will, if Labour is able to give effect to its policy, cause no end of misery to the proletariat. Under the scheme inflation is inevitable, and saddling a community with an inconvertible inflated money scheme may be classed as a political crime. If the farmers are paid certain fixed prices for their produce, and those prices must be well above the prices now current, then tho whole community would need to' be paid higher salaries and wages, higher pensions and higher dividends. This must necessarily follow, and once that is started commodity prices must advance. Wages and salaries form no small part of the production and distribution costs and must be added to the cost of the commodity. If it is found, as it will bo, that the wages and salaries—that is, the purchasing power—is insufficient to provide the standard of living there will be great discontent. Those who support the idea of creating purchasing power by inflating the currency disregard the obvious truth that commodities and services are purchasing power in themselves and that more than 90 per cent, of the trade of the country settles itself in the busiest times without the use of money. The national economy must balance as it normally does in the exchanges between the different groups and sections in the industrial system. To keep on injecting paper money into an unbalanced economic situation only tends to aggravate the position. GREENBACK INFLATION. The first issue of greenbacks in America, which was for the purpose of financing the Civil War operations of the Northern Army, was early in 1862, and amounted to 150,000,000 dollars. At that time the amount of other circulating media was 210,000,000 dollars, giving a total circulation of 360,000,000 dollars. By 1860 the circulation had increased to 774,000,000 dollars and the index of wholesale prices had risen from 97 (1860-100) in 1861, to 185 in 1865. A similar movement is bound to occur in New Zealand under the “guaranteed prices” scheme of the Labour Party, for the Government would be obliged to issue through the national credit authority an ever increasing volume of paper money, and the greater the circulation of paper money the higher will commodity prices go. Paper money, declares an authority, is really a forced loan, which, if not redeemed, becomes a forced levy. That is what the policy of Labour means. The authority quoted says:—“Paper money has usually had its origin in periods of stress and difficulty for the State. The State issues it, 'and in return secures national goods and services. By means of it the Government gets hold of property of the people and keeps it temporarily, if the currency is in due time redeemed and retired, but permanently if it becomes a definite part of the circulating medium. If resumption of specie payments takes place on any level of value below that upon which the paper money was originally paid into the Treasury, the State,' m so far retains permanently the property received.” There are about 817,617 depositors in the Post Office Savings Bank with deposits aggregating about £50,000,000. The wide-awake depositors would no doubt withdraw their deposits on the first signs of danger, but the mere withdrawal and bolding of the funds in printing press money would be no advantage, but the deposits withdrawn must be exchanged for Mint money, and silver is all that is obtainable. If the Labour policy is carried out during the four years of the life of the next Parliament the Post Office deposits would be wiped out; that is, they would have no value, and stocks, bonds, debentures and shares would go the same way. What the experience of the United States was with its issue of greenbacks is related by the authority we have quoted above as follows: —“The issue of greenbacks presented a preeminent case in which a Government forced a loan or levied taxes by means of inconvertible paper. But the experiment in addition left a legacy of woes behind it. The country found itself burdened with a varying standard of value in the settlement of accounts and thus encountered calamity in a region unconnected with loans or taxation. With wide and rapid oscillations in the value of the currency, every trader suddenly met with great fluctuations of prices, goods sold in greenbacks of a certain value were paid for a month or two later in greenbacks of a different value; every trader carried the seed of uncertainty at its core; and ruinous losses were inflicted upon - innocent business men by a force which they could provide no control and for which they could provide no remedy. AUSTRALIAN LOANS. The Commonwealth has been a consistent borrower in the domestic market for the past three or four years. Fortunately, for Mr Lyons money rates have been low but the demands on the market have been rather heavy, consequently the trend is for interest rates to advance. In May last the Australian Loan Council authorised that the maximum that could be raised in the Commonwealth during the financial year 1935-36 was £31,000,000. Of this total £26,000,000 were allocated to public works. The first portion of the above total, viz., £12,500,000, underwritten by the banks, was placed on the market in June, applications closing on June 25. The issue price of the loan was £99 and the interest 3f per cent. For this loan the public subscribed about £10.800,000, leaving the underwriters to provide £1,700,000. The loans raised last year carried 31 per cent, interest, but apparently raising the interest by 2s 6d per cent, to 3| per cent. was not sufficiently attractive to the public. The consensus of opinion in Canberra, at the time, was that the rate .of interest would have to be raised if the remainder of the borrowing programme was to be successful. The loan now before the Australian public is for £7,500.000, the issue price is £99 15s or 15s more than tho previous issue, but the interest offered at 31 per cent, is 7s 6d more than was paid in the earlier loan. The inference to be derived from this is that money rates are tending upward which is a very favourable feature. It is obvious that investors are becoming more confident with respect to investments other than giltedged. And there is considerable justification for this, for industrial concerns are showing increased business profits, and are distributing higher dividends. The Australian money market exercises some influence over money rates in New Zealand, and soon investors will be content with

not less than 4 per cent, on Government bonds. BRITAIN’S INVESTMENTS. Sir Robert Kindersley. has compiled some interesting figures regarding Britain’s investments. A study of the overseas investments over the last five years shows that, while there has been a persistent decline in the proportion of Government and municipal loans of foreign countries the nominal value of Empire loans has been consistently increasing. Empire loans rose from £1,036,000,000, at the end of 1928 to £1,109,000,000, at the end of 1932, and £1,147,000,000 at the end of 1933. As a result the proportion of foreign loans to total Government and municipal loans declined from 26 per cent, at the end of. 1928 to 22.5 per cent, at the end of 1933. The nominal value of British investments in bonds and shares of registered British companies operating entirely or mainly abroad rose from £1,205,000.000 at the end of 1932 to £1,211.000.000; at the end of 1933. The decline in income from these investments from £42,500,000 in 1932 to £41,900,000 in 1933 was due largely to a reduction of about £1,000,000 in interest on loans capital as distinct from share capital, i the loan capital bavin" been reduced.