CURRENCY REFORM

New Zealand Herald, Volume LXIX, Issue 21329, 2 November 1932, Page 15

CURRENCY REFORM

Sir, —If it were feasible to adjust every contract fairly there would still be tho objection that the letter of the contract had been broken; and as it is notoriously impossible to adjust every contract fairly we must continue to differ from Mr. Johnstone, and abide by our preference for .reflation as the solution. He at any rate, agrees with us that the present position of debtor and creditor is inequitable. But he contends that a trader does not profit from a rise in prices, because the £2OO he receives in place of the £IOO ho expected will buy rio more than the £IOO would have done. But when he buys at £BO and sells at £2OO, he finds his profit is £l2O instead of the £2O he expected, i.e., it has been multiplied by more than the rise in price. Such a transaction could' not be justified except after such a severe deflation with its accompanying losses, which we have passed through recently. The rise in price benefits the producer and the trader, and the expectation of a rise stimulates industry and commerce. Profitable industry and commerce provide the baso on which rests tho solvency of central and local governmonts, but unless the return of prosperity comes at exactly the same rate in every country, the country which recovers earliest will have a temporary high exchange rale. The idea that nothing but serious embarrassment will result to Government and local bodies from a return of prosperity illustrates the power of tho Word inflation to prevent people opening their eyes. As regards losses to private parties it has been a popular criticism of any policy leading to a high exchange rate that it would simply rob Peter to pay Paul; whereas it would bo nearer the truth to describe it as calling a halt to the robbing of Paul to pay Peter. For the fall in prices has benefited the receiver of interest at the expense of the borrower, tho inactive at tho expense of the active, and a reversal of the movement in prices would merely put an end to that injustice. When a high exchange rate is due, not to a rise from a level of comparative stability, but to an endeavour to maintain or regain that condition when an overseas fall has taken place, it is a mistako to imagine that tho same results are experienced as when tho high exchange country has inflated while the rest of the world enjoys stability. Currency Reform League.