GOLD STANDARD AND MONEY.

Otago Daily Times, Issue 19616, 21 October 1925, Page 3

GOLD STANDARD AND MONEY.

LECTURE TO FARMERS. DR FISHER AT MOMONA. Dr Fisher (Professor of Economics at the Otago University) delivered an address on financo and the gold standard to a large meeting of farmers at Momona on Monday evening. Mr W. Moore occupied the chair, and introduced the speaker. In introducing his subject Dr Fisher stated that the question was not a complicated one, and many of the things he would say would seem to indicate that he was labouring the obvious. He stated that the first thing to bo dealt with must be money. One writer had made the almost paradoxical statement that money was fundamentally an unimportant item. It was by no means an end in itself, but was useful only to be got rid of iu exchange for something else. The first thing to be grasped was what tho value of money was end what money would buy. When the Values of goods rose the value of money decreased, and vice versa. This was an inversion of our common modes of thought, but it was not difficult to understand. The general tendency was to think of money in terms of £ s. d. and not of the value of the money itself. Two things had to be considered—money and goods. There was a distinct relation between these two items. Tho general practice was to overlook the value of tho money side. Practical men tended to emphasize the goods side, which was important, but not sufficient. The business man assumed that his province was confined to tho accumulation of technical knowledge of ihe nature of the eoods he handled. It scarcelv occurred to him that he needed a knowledge of gold. This knowledge was no longer, if ever it was, a question of purely academic importance. The changes in the value of money of late yep.rs had been so violent that the position demanded a close consideration of the money side. Everywhere there had been serious dislocations and price changes, which had been attributed to a variety of causes. Profiteering and lack of thrift among working men were some of many. Tho main cause, however, was the changes affecting money. Prices rose everywhere, but there was 3 greater increase in money than m goods. In 1914 there were in New Zealand notes to the value of about £2,000,000, and in 1920 this had increased to £9,CC0.000. From this, after allowing for the gold reserve, it was. roughly, true to say that tho volume of paper money in the country was doubled between 1914- and 1920. Th_ ui the value of each £ had to diminish and prices had to rise. There was nothing surprising in this as it applied to everything else. With a record crop, the value p«r bushel dropped. Credit ;iiude no difference. If was certainly important, but it did not affect the main principle. People generally thought that actual money was of no importance, but the actual gold and creiit were very closely related. They thoujrht of nn' enormous superstructure of credit built on a slender money foundation, but it Was as well to realise the close relationShip of money and credit The value of each £ in credit wa* identical with the value of a £1 note. The one could be converted easily into the other. There was no difficulty in keeping the equivalent and the value identical while one of the two items was under control.

It might he asked what bearing all this had on present high prices, as the overissue of paper money had ceased. The note issue in New Zealand had diminished since 1920 by £1,000,000, while the population had increased by nearly 16 per cent. Tet in spite of this, prices were up about 60 per cent, on pre-war rates. This, stated the speaker, brought in the question of gold. Prices here in New Zealand and in Great Britain were gold prices. There was no special reason why prices should revert to 1914 rates. Gold values had changed prior to 1914 many times. Tlie question of supply and demand came, in here. The price of wool dropped not only if there was an enormous supply, but also if the demand were dull. The value of gold decreased if the demand loss, as had happened during the war. Nobody was keen on getting gold, with the result that the value dropped. At the same time prices rose. When a substitute was found for any commodity the value of that commodity fell. Thus when paper replaced gold the value of the gold decreased. This state of affairs existed to-day, with the result that gold was still down in value, and prices had remained high. A sudden return of the demand for gold would be a bad thing all round, as the rise in the value of gold would bring prices down with a bump, which would not be very satisfactory. Hence money should not be judged by its intrinsic worth, but by its ability to keep prices stable.

Tho relation between gold and paper was similar to that ascribed above to money and credit. The issue of paper should be so regulated that £1 in gold and £1 in paper should be interchangeable. Hence the forces which determine the value of gold, determined the value of all other money which was interchangeable with gold. During the war this was not so; other money was not interchangeable with gold, with the result that prices everywhere depended on local paper issues. These rose with varying speed and magnitude in different countries.

In this way the vexed question of foreign exchanges arose. This as presented between Loudon and New Zealand was sufficient to illustrate his meaning as the principles were the same everywhere. The primary purpose of money, it must bo remembered, was to buy things. Thus the same quantity of money in any country should purchase the same quantity of goods, allowing for transport, tariffs, etc. If between blew Zealand and Great Britain there was a difference, people wouid trade in one place, with the result that the two £1 notes would again be identical. Since 1914 these had ceased to be identical, and the two £1 notes had had little in common. The worst period of exchange was when the rate stood at 55s per cent, discount, which meant that for £IOO in London wo received £97 5s in Now Zealand. The banks had received much criticism in this matter, but he considered most of it unjustifiable. Critics stated that this rate meant an “export tax” of so much on every quantity; of produce, but they forgot that it meant an “import bonus” also on all imports. Also, the profit of the bank was not measured by the difference between the quoted rate and par, but was determined by the difference between the buying rate and the selling rate. If the bank made the rate too high, there was nothing to prevent private individuals from conducting their own exchange transactions. This had been done frequently. Banks could not fix an arbitrary rate any more than anyone else could fix prices. When currencies were not linked by dependence on gold, tho exchange must in general be such that the sum named on the one side of the equation would purchase as much as that on the other side. This was partly the explanation of the discount last year and during the present year. Prices in Great Britain were slightly higher than in New Zealand, and, £9B here was equal ro £IOO at Home. So far as this was the explanation, people did not lose much from the discount at all. Hie speaker concluded by saying that the test of satisfactory money was whether prices remained steady and did not fluctuate, thereby distracting and confusing business and commerce.