WORLD PRICE LEVELS

Otago Daily Times, Issue 21198, 2 December 1930, Page 9

WORLD PRICE LEVELS

NEED FOR STABILISATION. THE EFFECT OF GOLD. 'an interesting address. (United Press Association.) (By Electric Telegraph— Copyright.) LONDON, November 30. The effect of gold on world price levels was the subject of a ■ broadcast address by Mr Reginald M‘Kenna. Great interest was taken in the address in view of the increasing attention being given to monetary policy. Mr MTCenna explained that a falling price , level_ meant a diminution of the profits of industrial trading and enterprise. The effect, if the’ fall came when the profits were not excessive, was to stifle trade. On the other hand a rising price level imposed .an invisible duty on all fixed money incomes and all relatively'' inelastic incomes, such as wages, with-a reaction on the standard of living. An increase in the quantity of money would not necessarily prevent a fall in price level, since the whole increase might he absorbed by speculation. A monetary policy could not' govern the price level-unless the use of the'money as well as the quantity could be controlled. The maintenance of : stabilised price was a world problem necessitating that the real value of gold, namely, its purchasing power over goods and services, should remain constant wherever it was used as a standard. There was an unprecedented drop Inst year of 17 ger cent, in the wholesale price level. We naturally seek to discover whether a contributory cause is the diminution „f- Bu PP 1 y- °f monetary gold/’ said Mr M Kenna. “We find that, although newly-mined gold to the extent of probably £100,000,000 has become available during that period for monetary and credit purposes, more than twice that amount has been absorbed by two countries without a corresponding addition to the money in active circulation. That gold is as barren as when it lay in the mine.” '

. 3 lr M'Kenna strongly advocated an international discussion and an agreement to prevent such an uneconomic decline in the active stock of gold. There should be frank recognition by the monetary authorities of the desirability of a stable world level. Either more be added to the quantity available as the basis of currency and credit or more effective use must be made of the existing stocks. Recourse must be made to an international agreement.

Mr M’Kenna was Chancellor of the Exchequer in 1915-16. He is at present chairman of the Midland Bank.