PROFESSOR TOCKER AND THE EXCHANGE

Otago Daily Times, Issue 22708, 22 October 1935, Page 11

PROFESSOR TOCKER AND THE EXCHANGE

TO THE EDITOR. Sir, —In s'our issue of Saturday you report Professor A. 11. Tocker as having said that for the good of New Zealand and the world the exchange should be kept at its present level. He says: “In January, 1933, the exchange had been raised to 25 per cent. The effect of the rate had been immediately to bring more money into the country.” Sir, one :s almost afraid to differ from such an important person as a professor, but perhaps professors are human and make mistakes. It is important that the professor should be put on the correct path, seeing he is looked on as an authority on the subject, and is an adviser to the Government. Now, Sir, Professor Tocker is entirely wrong. It would be far better and more just to bring the exchange back to parity with sterling, provided the export tax an gold was also taken off. Professor Tocker is again in error in the statement that the raising of the exchange brought more money into the country. What it did was to cause more goods to be given for the same amount of sterling. Now it is not my intention just to make a definite statement that the professor is wrong, but I hope to convince him by illustration that he is so. It will be as well to remind him that we have many thousands of unemployed able-bodied men and women in our country, many of them going short of the essentials that make life worth living. Anything that will give these people the opportunity to produce the required essentials, or to participate to a larger degree in the products of our country, will, in the writer’s view, be in the best interest of New Zealand and to the world. To illustrate what would take place if the exchange is taken off and the currency brought to par with sterling; (1) All legal tender currency would rise in value by approximately 25 per cent, against sterling for future external business. For example, A, an exporter of goods, would pay £IOO instead of approximately £125 for £IOO worth of London goods. His getting £IOO worth of London goods at 25 per cent, less cost would eventually force down internal prices, until internal prices of goods would fall by approximately 25 per cent. The fall of the price of goods would raise the purchasing power of internal currency by approximately 25 per cent.; in other words, the worker’s wages would rise in value by the said amount. As we have approximately 50,000 persons on relief wages —wages which no Government would dare to reduce at this juncture by direct methods —their wages would be increased in goods. We also have a large army of public servants, who also are on wages which the Government dare not reduce by direct methods. Their wages in goods would also rise. Increasing powers of consumption of goods by these two bodies of workers would result in increased stimulation of outside industry, and eventually the relief workers would be absorbed bv private industry owing to the demand of private enterprise to meet the increased demand for goods. In effect, all sections of the country would benefit, and ultimately the world would benefit by the exchange being reduced. Now, to deal with the professor s statement that by raising the exchange more money was immediately brought into the country. Allow me to point out that what took place on raising the exchange was that all currency used tor exchange purposes was decreased in value. A, an importer, instead of paying £llO for a £IOO draft on London, paid £125 for £IOO. Naturally, he had to increase the selling price of goods imported. Imported goods rose in price. Commodities, both primary" and secondary, produced m New Zealand, were forced up h v the sales tax, either directly or indirectly. Thus the internal price level was raised, and money wages value was forced down. Industry stagnated, and the number of workers unemployed and on short time was increased. At the same time the volume of goods given in payment for outside interest had to be increased, owing to the rise in exchange. In actual fact, the Government placed an export tux on the exports of the Dominion, the tax being taken by Britain. In effect, the old Tory imperial policy of the eighteenth century had been put in operation on New Zealand by the sons of New Zealand, Mr Forbes and Mr Coates. In the latter part of the eighteenth century this was done from London on the North American colonics, with the result of revolt. To-day we see the United States of America as the consequence. An example of what took place in actual fact when the exchange was raised against New Zealand is clearly shown by the following example:—A. in London, cables a draft of £IOOO to B, his agent, in New Zealand. B, on receipt of the draft, is credited by the bank with, say, £1250. B. on behalf of A, purchases wool at £5 per bale. B gets 250 bales for his £1250. On the arrival of the wool at London it will be found that the cost to A has been £IOOO. I am, for simplicity, omitting cost to A of freight and insurance. In effect, A gets 250 bales for £IOOO, or at £4 per bale. Before the rise in exchange A cabled his draft for £IOOO and B gets

£llOO, the exchange being then at 10 per cent, against New Zealand. B buying wool at £5 per bale, gets 220 bales at approximately £4 10s 6d per bale (London money). On the two deals it will be seen that the New Zealand wool grower with the exchange at 110 to 100 got £IOOO sterling for 220 bales. With the exchange raised to 125 to 100 he gets £IOOO sterling for 250 bales—a difference of 30 bales. The increased money by which the professor referred has resulted in the wool grower being forced to give the British buyer an extra 30 bales. So far as he is concerned he had got £IOOO sterling and no more, the only difference to him being that his £IOOO is credited in figures at £1250 instead of £llOO New Zealand currency. As the internal price level of goods in New Zealand rose as the result of the increase iu exchange, the wool grower has to purchase his work on a higher market with a depreciated pound. The exchange benefits the outside country at the expense of the workers of New Zealand. It will also be seen that the London price of wool fell from £4 10s 6d per bale to £4 per bale by the increase in the exchange from 10 per cent, to 25 per cent. Thus, the Government by raising the exchange helped to force down export prices on the London market. The above examples are not theory but practical business facts.

While I do not wish to extend this letter further at this juncture, I can assure you I w’ould dearly love to be able to write above a noin de plume. I am mindful of the times we are passing through, and of the minds of some people. But as I am criticising an adviser to the Government, and I believe that he is wrong, and that , the people are suffering as the result of such advice, I must pen my name to this letter. I intend, if you publish this letter, to send a copy of your naper to Professor Tocker, asking him to comment on the contents for the benefit of your readers and myself. Times like the present demand that the truth be told, and wrongs, if thev have been committed, should be rectified as far as is humanly possible. I assure the professor that I am mindful of the necessity of co-operation between the dominions and the Mother Country. Furthermore, 1 realise the necessity of the dominions assisting the Mother Country to control the world’s exchange between the producers of industrial products and financial capital. But I seriously suggest that to manipulate the exchange so that it impoverishes the residents of the Dominion for the benefit of the British financial speculators is not in the best interests of the Empire. History has proved in the past that it is unwise, and will again repeat itself when our people understand what is taking place. I trust, seeing that Professor Tocker’s views are being published throughout the Dominion, he will not fail to comment on this criticism of them. —I am, etc., C. M. Moss. North-East Valley, October 19,