MONETARY STABILITY

Nelson Evening Mail, Volume LXIV, 20 February 1931, Page 9

MONETARY STABILITY

IRVING FISHER SCHEME NELSON FARMERS’ RESOLUTION COMMENT IN CIIUISTCIIUItCII The Nelson Provincial Executive of the Farmers’ Union, it was reported by telegram, lias asked the Government to investigate Professor Irving Fisher s plan to control price fluctuations by monetary reform. Though investigation can do no barm at all and may do some good, it is dangerous to fancy that in monetary reform the Government has overlooked an alternative to the present disagreeable policy of deflation (comments Iho Christchurch “Press”). New Zealand’s problem is to recover parity with, markets where deflation lias already been carried out, and cannot be solved now by a method of controlling price recessions that have already occurred; but while this is Iruo it is no less so that monetary relorm — uou necessarily as desired by Irving Fisher — would gradually and increasingly assist the process of world recovery and night iho*; he made the foundation of puce stability, from which ihe Dominion lias much to gain. Unfortunately, it makes little difference what aspect or plan of monetary reform we regard with most favour or hope, because New Zealand caunoi turn to any with much prospect of independent success. But if this means that the Dominion must wait for tlie larger benefits of monetary reform until they are showered upon her bv the co-operation, of the world’s central banks or at least until some of them are provided by the better co-ordination and 01 gairsaliou of the Empire’s banking, it does not mean that waiting need bo inactive. When Sir Otto Niemeyer’s full report is available, it will probably indicate along what lines the Government should work to suoure both tho it Lernal and external advantages of reserve banking. In tlie meantime, it is tlie absence of any such foundation llial severely restricts Hie usefulness of discussing Professor Fisher’s plan, or at, any rate postpones indefinitely tho enjoyment of its benefits. Professor I). B. Copland has expressed the view that they are beyond tlie reach of Australia, since the Commonwealth (though its banking system is more advanced than New Zealand’s) lacks the means “of so controlling tho monetary system as to maintain a stable price level” ; and tho objection of course has greater force where, as in tlie Dominion, control is still less effective. Professor Fisher’s proposal, in outline, is that gold, whilo ia serves as the basis of currency and (lie final means of making payment abroad, is to be kept out of circulation, though notes arc to be freely convertible; that changes in the price level are to be indexed ; and that the index number should regulate, or be regulated by, the “gold content” of tlie pound, or, in other words, the weight of gold which the Treasury would give or accept for a £1 note. According to Professor Fisher himself, tho plan would work so as to retain a rise or fall in the price level (a fall or rise in the purchasing power of the sovereign) by increasing or decreasing tlie weight of Hie sovereign (decreasing or increasing tlie price of gold). It is therefore a method of corrective control, evening out and flattening the upward or downward curve of the price level or of gold values over long periods, and as such is generally thought likely to lie effective and useful; but Keynes, on tlie one hand, thinks that the “often more injurious, short-period oscillations of the credit cycle” would be unchecked by it, and Professor Copland, on the other, thinks that, as a- mechanical device, it wants adaptability: “there is no guide as to the amount of variation (in Hie gold content of the currency unit) required for a given movement” of tlie price level. It may lio repeated, however, that as the efficacy of the .scheme, whatever its limits are, arises out of the efficacy of reserve hanking control over credit and prices, an investigation of it must largely he an investigation of an instrument yet to be fashioned in New Zealand.