PRICE LEVELS

Nelson Evening Mail, Volume LXIV, 7 August 1931, Page 8

PRICE LEVELS

RELATION TO MONETARY SUPPLY

ADDRESS BY PROFESSOR TOCKER The Christchurch Chamber of Commerce room was taxed to capacity when over 100 members of the Christchurch Accountant Students’ Society attended to hear Professor A. 11. Tucker speak on “Banking and Price Levels,” with special reference to Sir Otto Niemeyer’s report (states the “Press”). “At the present time great interest is being shown in the connection between banking and the price level,” said Professor Toekor. “This is due largely to the widespread belief that the recent heavy fall in prices is due to deflation of money. Examination pf banking returns in many countries however, fails to show that deflation preceded the fall, and it appears that the price decline has been caused largely by conditions bankers can have no control. In America, lor instance, bank deposits increased greatly between 11122 and 1928. There was no corresponding increase in prices ol goods, but prices of shares increased much more than proportionately. “In other countries also, events point to the conclusion that the general level dt goods prices should be related only to a particular part of the monetary supply which might be called the commercial circulation. There is another part of the monetary supply which might be termed the financial circulation, and which might be a greater or less proportion of the total supply. Bunkers may control the total supply of money; they cannot control the proportions which the public elect to use for commercial and for financial purposes respectively. Consequently the Commercial circulation might increase or decrease greatly and prices might rn«e or fall without any variation in tU total quantity of money.

MANAGEMENT OF CURRENCY “It follows, therefore, that the control which bankers can exert over puces is very limited. Price movements are due to many factors, and the volume of money in circulation is only one of those factors. During and alter the war, however, the inflation which occurred showed that effective control over the volume of money is essential to sound monetary conditions ard to sound business, and in most countries central banks have now been established to supervise the management of currency. Such central hanks are not commercial banks, and are complementary to, rather than eompttitive with, commercial banks. “An important recent step has been the establishment of the Bank of International Settlements in Switzerland. The hope has been widely expressed that through the agency of this bank the activities and policies of the central banks of the leading countries will be co-ordinated, and lienee a greater degree of rationalisation and co-opcra-tion will be secured in the international management of money. Should this be done prices, credit conditions, and business, both national and international, would have a sounder basis and would probably be much more stable. The efforts already made to secure co-opera-tion in dealing with the German financial crisis indicate that very good results may be expected from.such cooperation.

REFLATION OVERDUE ‘•'ln New Zealand, where the gold standard has been suspended and the currency has been on a paper basis since 11)14, sonic definite regulation of the monetary system is long overdue. Nearly a year ago, Sir Otto •Niemeycr visited New Zealand, to report on methods of currency and exchange regulation. His report has now been published by the Government. Tt recommends the establishment of a Central Reserve Bank, whose main function would he to manage a uniform note issue and to maintain stability of exchange and of credit conditions. The bank should he entirely free from political control, should have its profits limited, and should have certain privileges granted in exchange for the responsibilities it has to undertake. “It could not he expected that any variation of our monetary system could safeguard us completely from the effects of wide fluctuations in world priceß of the products we export, but the Niemeycr Report offers us a means of monetary regulation which is consistent with monetary practice in New Zealand, which could he relied on to maintain stable conditions of currency and exchange, and which might, at the same time, rationalise our methods of credit control and make possible substantial economies. As such it should receive the fullest consideration.”