COMMODITY MARKETS AND PRICES.

Manawatu Standard, Volume LX, Issue 210, 3 August 1940, Page 4

COMMODITY MARKETS AND PRICES.

WHAT IS INFLATION? (By “Pcnloo.”) According’ to some authorities the danger of inflation hangs over the United Kingdom; and this because the small wageearners who account for two-thirds of the national consumption have been insufficiently taxed in the latest Supplementary Budget. The Certified Accountants Journal (London) in a recent issue stated :—“lf the Chancellor resorts to inflation the general rise in prices will hit all taxpayers, and not in the most equitable fashion, for whereas taxation can in general be adjusted in accordance with ability _to pay, and direct taxation can in _ particular be graduated on a progressive scale, an inflationary rise in prices is repressive in its incidence, and hurts the poor far more than the rich.” In his speech in the House of Commons the Chancellor of the Exchequer (Sir Kingsley Wood), referring to dangers of inflation, said: “I am confident wo will be able to avoid them. Inflation might be fatal fo the successful prosecution of the war. The essential need is that the deniand should not outstep production, which means that the excess of public incomes over the available goods must not he used for current purchases. The best way to secure this objective is to divert the excess of income to the State by taxation.”

This may be very clear and convincing to experts and economist. 0 , but the man in the street, who has been just warned of inflation and its dangers, knows nothing of the essence of the matter. What is inflation and when docs it come about are the questions he wants answered, and to give the answer in simple terms is not quite an easy job. As understood, the income of a nation cannot exceed the total production of the nation. It may also be claimed that, unless a nation produces, it would have no income and would soon bo extinct. The economic idea is for national production and national income to bo in balance, but the ideal is never attained. Production itself needs some definition. There is the great volume of consumption goods which are the daily necessities, such as food and drink; then there is the production of capital goods, such as -machinery termed “capital” goods because they can be used to produce other goods; and finally there is the production of wasteful or destructive goods such as tanks, bombers, _ fighters, guns, rifles, bombs, ammunition. These de-

structive goods are made to be destroyed, and they have a limited usefulness if the killing of people, and the destruction of property can be called useful. In peace times the first and second classes of production, that is consumption goods and capital receive exclusive . attention: but in war time the production, of wasteful and destructive goods takes precedence, the production of the other two classes being more or less neglected. Britain’s war expenditure is on a huge scale and mevt of Hie industries of the country are engaged in the production of wasteful goods. Many hundreds of thousands of workers are receiving war money, and the greater part of the war incomes is being spent on consumption goods, which arc not being produced in the same volume as the war goods; consequently, prices of 6ueh goods are advancing, and rationing will not check this advance. The fact is that money in relation to consumption goods is cheap and plentiful, and what is the same thing, consumption goods in relation to money are dear. . It must he obvious that if no check is applied and war expenditure continues on a largo scale, the prices of goods must soar, and reach a level which would place them beyond the roach of small wage

earners, flow to check this rising tendency is the problem to be- solved. If for any reason the war expenditure ceased, there would be aggravated unemployment and a restricted demand for consumption goods because the spending power would lie curtailed. The problem is how to check‘the demand for consumption goods while the war expenditure continues. The best and most effective way, anu, the one recommended by the experts, is to increase the taxation on the wageearners. That would lessen their spending power, lessen the demand for consumption goods, and stabilise prices. The wage-earners arc selected for taxation because they account for about two-thirds of the consumption and it is necessary to check their demands. If a check is not applied it will be the low-wage workers who would he the hardest hit, for prices of consumption goods would go so high that their wages would not reach them. The standard of living all round in the United Kingdom is much lower than it has been. There is another but less effective way of dealing with the matter, and that is bv raising loans and thus sweeping money into the Treasury. But as it is optional with the individual it is not so satisfactory as taxation which is compulsory with the individual. Somo_ people fancy that when the standard of living falls, the remedy lies in increasing wages and 'salaries. This has quite the opposite effect. When wages and salaries are arbitrarily raised and without regard to production,

the rise adds to Hie costs of production and distribution and commodity prices are thus forced up. Inflation means an excess of money or spending power in relation to the production of consumption goods. One may be sure that the autlio ritics in Britain will take strong and effective measures to prevent inflation. The New Zealand Government, apparently following the example of the British Government, virtually commandeered the Australian shares held by New Zealand investors, probably intending to act as the British Government lias done. The latter took over the American securities held by British investors, sold some of those securities in the United Stales, and thereby obtained dollar credits to pay for the war material purchased in the United States. The position here is different. The currencies of both Australia and New Zealand are linked with sterling, and therefore any balance due from one country to another can be discharged in sterling. Apparently the New Zealand Government had the idea of selling the Australian shares in Australia, thus obtaining funds in Australia with which to pay the balance due to Australia. But the Commonwealth Government had a voice in the matter. If the Now Zealand Government sold the shares in Australia that would have swept a certain amount of Australian capital into shares, which would have affected the war efforts of Australia, and the Commonwealth would have had to draw on its sterling funds

to carry on, which would not suit Australia. It seems now that the Federal Government has interposed; at all events the New Zealand Government has retreated from an untenable position. From Monday the New Zealand Stock Exchanges will be free to deal in Australian shares, hut a certain amount of red-tape will apply to worry brokers and investors. The idea scorns to be to cheek the transfers of shares possibly in the interests of social security. There should now be good trading on the Exchanges for there is money here for investment.