Farmers Fight for Free Exchange

Manawatu Times, Volume LV, Issue 6763, 22 January 1932, Page 7

Farmers Fight for Free Exchange

Law of Supply and Demand Should Operate

Reply to Banker’s Criticisms

Per Press Association,

WELLINGTON, Last Night.

The Farmers’ Exchange Committee appointed by the recent joint conference of the producers’ interests in. replying to Sir George Elliot’s comments on the exchange question, as quoted in the press, states that the interview as given contains a mis-statement of fact. Sir George is reported as saying: “The proposition that has been put before the Government is that New Zealand exchange rates should bo placed upon the same level as Australian rates.” This is not the proposition, says the committee. The proposition put forward by the farmers’ deputation to Cabinet was that the Order-in-Councii fixing the rate of exchange should be withdrawn and the exchange market left free in tlio same way as it is in other parts of the British Empire. The farmers’ deputation added that if the Government would do this then they should fix the rate at that level which it would reach under a free market.

Sir George stated that “any interference with tho exchange rate is a dangerous experiment.” “In this we entirely agree with him,” the statement continues. “Farmers don’t want any interference in tho exchange rate. They simply want it left to a free market.. Sir George, while objecting to interference, then goes on to support interference and gives a qualified admission of such interference by the banks by saying ‘the present rates have been determined to a large extent by the operation of supply and demand. The samo forces will continue to regulate them.’ Farmers want the exchange to bo fully and not partly determined by the law of supply and demand. Supply and demand has been affected in the past by large Government borrowings in London which has been to the great disadvantage of tho New Zealand farmers. Now that overseas borrowing cannot continue tho Government has by Order-in-Council stopped all competition for exchange. It is idle to say that supply and demand will continue to regulate exchange when demand is confined by Government action to one buyer.

“Sir George says again: ‘Can our merchants and shopkeepers pay extra exchange cost themselves or add them to their prices?’ Sir George in this special pleading on behalf of importers and retailers is advocating taking the farmers’ property from them at less than it is worth in order that merchants and shopkeepers may buy cheaply. Can we not reverse his statement end put it this way: ‘Can the farmers afford to accept these low prices fixed by an unfair exchange rate in order that, merchants and shopkeepers shall buy cheaply?’ The answer is definitely no, and unless free exchange is applied farmers are facing inevitable disaster. The effect of the Government Ordcr-in-Council is to stop all competition for export exchange and thus prevent it from finding its own proper market level. Farmers are the only suppliers of export exchange from New Zealand and the action of the Government is taking farmers’ property from them at less than it is worth. “The situation is summed up thus: Farmers sell their export goods for

English money. They sell that English money for New Zealand money. The Government is taking from them their English money at less than its market value in New Zealand. The effect of this is to hold down the price of the farmers’ export products and as the price of farmers’ products sold for local consumption is fixed by export prices that action also holds down the prices the farmers get. for their products in New Zealand cities and towns. The result is that farmers are now on an average getting for their products the lowest prices for 10 years and are fast drifting to ruin. Sir George says he is sympathetic to the farmers’ difficulties. Farmers would like to see that sympathy shown in a practical fashion by the liberation, of exchange so that they could secure the full value for their products on the world’s market as reflected in New Zealand money. They want nothing more than that. Unless they get that they will infallibly be ruined.

"Statistics show that for the ten months January to October, 1931, the farmers’ export price index has fallen to 847 while the farm cost index remains a.t 1500. Farmers cannot continue like this. They have cut. their costs inside their fences to the bone, but their chief costs arc outside their fences and ere beyond their control. These costs which are inelastic move

slowly. The free exchange rate is a natural corrective spreading tho effects of the slump over the whole community. The action of the Government, which Sir George Elliot is supporting is fastening the whole effects of tho slump ou the necks of the farmers in order that merchants, shopkeepers and others can buy imported goods and farmers’ products cheaply. “Tho view of tho Government and Sir George Elliot is a short sighted one. They overlook the fact, that farming is tho basic industry of this country upon which every other industry rests. The first thing necessary for tho improvement of the economic conditions is the restoration of the farmers' purchasing power. This is the base oi all economic life in this country and until this is done the country will go from bad to worse. The action of the Government, supported by Sir George Elliot, is crippling the farmers’ purchasing power and making things worse. ’ ’

“Would Raise Costs”

SIR GEORGE ELLIOT’S VIEWS

AUCKLAND, Jan. 20. “There is a fundamental and insuperable objection to the proposal,” said Sir George Elliot, ex-chairman, of directors of the Bank of New Zealand, in commenting upon tho proposal that the exchange rates should be increased. “The question of exchanges is essentially very simple,” said Sir George. “Shorn of all complicated arguments upon theoretical aspects, tho proposition that has been put before tho Government. is that New Zealand exchange rates should be placed upon the same level as Australian Tates—2s per cent, instead of 10 per cent. The effect would be, according to advocates of this measure, that the returns to exporters would bo increased by £4,500,000, assuming that tho sterling value of our exports is £30,000,000. This is not extra money. The sum of £4,500,000 would have to be collected from the whole community: a considerable amount of it by the Government through extra taxation, but the greater part from importers. To suggest that tho taxpayers generally and the commercial community especially can boar the additional burden of £4,500,000 is ridiculous.

"1 am perfectly aware of the difficulties of the farmers, and have the utmost sympathy with them, but. it would only aggravate their difficulties if the country embarked upon an experiment, of which the results would be so serious. How is the general community going to pay £4,500,000? Can our merchants and shopkeepers pay the extra exchange costs themselves or add them to their prices? Business is possible under present conditions only when prices are cut to the lowest possible level. The inevitable increaso in the cost of all imports would consequently curtail business still further, and the commercial community would be involved in such difficulties that it would also have the right to appeal for assistance by a similar scheme of taxing the whole community to subsidise a section of it. Inflation of Currency

“Any interference with the exchange rates is a dangerous experiment. The present proposal is merely an indirect moans of inflating the currency. Its adoption would inevitably be injurious to the Dominion, and its ultimate effect would be to hamper the process of reducing the costs of production that is so important to the permanent, relief of primary production. Exchange rates cannot be manipulated for the benefit of some people without doing a, great deal of harm to the whole community, including the intended beneficiaries of the experiment. The present rates have been determined to a large extent by the operation of supply and demand. The .saruo forces will continue to regulate them, and there is neither need nor justification for any arbitrary interference with them.

“The Government's requirements create new demand, but the adjustment of our overseas trade has already increased the supply of funds to New Zealand’s credit overseas. During the long period in which our trade balance has fluctuated widely, the banks of the Dominion have so managed its exchange transactions that disturbing effects have been avoided, and the public may confidently rely upon them, with their knowledge and experience, to deal with the new situation in a manner that will safeguard the interests of the whole Dominion.’’