GUARANTEED PRICES AND PROPAGANDA

Otago Daily Times, Issue 23868, 24 July 1939, Page 17

GUARANTEED PRICES AND PROPAGANDA

TO THE EDITOR Sir,—For the purpose of this discussion I propose to proceed on the assumption that the Douglas formula, as propounded by Mr Chapman, that “ the flow of costs into prices is greater than the flow of financial credit into incomes,” is a correct hypothesis. In doing so I do not necessarily" affirm my belief in that principle. 1 make , the concession in the hope of lifting the discussion out of the ruck of controversy surrounding this formula and to determine whether the principle of “ debt-free credit ” issued, as Mr Chapman puts it, “ from some source extraneous to the money and banking system,” and then handing this money direct to the dairy farmer could solve the problem that is implicit in the use of the term guaranteed price as distinct from the compensating price The former, in its original interpretation, meant a guarantee to the farmer of a price based on the average price obtained for dairy produce over a period of years. The latter includes the former plus any costs that may be incurred from any source from time to time. During the first year of the guaranteed price scheme payment on account of dairy produce to the farmers exceeded realisation when sold by an amount of about £250,000' (I have not the figures by me to quote correctly, but the point I wish to make is not concerned with the correct figures, but rather with the principle.) This has since been transferred from the dairy produce marketing account and made a charge on the Consolidated Fund.- Last year there was a surplus ' of approximately £500,000 and this year there will be a deficit of possibly £2,000,000. This high deficit would have been considerably higher, possibly as high as if the recommendations of the Price-fixing Committee had not been severelv cut by the action of "the parsimonius Mr Nash." (“ Cquntrvman’s" definition.) Had the Price fixing Committee’s recommendation been adhered to we would, under the present system of national finance, have been obliged to transfer that deficit to the Consolidated Fund to be paid by the general taxpayer , If. on the other hand, the financial credit had been issued “from some source extraneous to the money and banking system, it would. I presume, now be floating

around more or less in an indiscriminate manner, or else lying in the form of a deposit to the credit of some of the numerous traders with whom the dairy farmer does his business. The original advance would still appsar on the books of the “ debt-free credit ” issuing authority. It is an easy and irresponsible way to cancel the advance by the casual stroke of a pen; but that, unfortunately, is not the end of the matter. This “ debt-free credit ” is still incorporated in the banking system, being represented as deposits held by the banks to the credit of certain customers. Having recompensed the dairy farmer for his costs, it does not iust automatically melt into thin air. It pays the landlord his rent, the storekeeper his account, the draper his. and so on. In the last stage it pays the mortgagee his principal. Up to this stage it has done a useful work, but it is just at this point that the rot sets in/ It is not profitable for money to lie idle. It must be reinvested. Where is the field for reinvestment? Since the Government can issue “debt-free credit ” for the farmers it will naturally follow the same formula fqr its own public works and social services. Then we have the spectacle of the banks holding deposits for clients who must find investment for idle funds somewhere, somehow, there will be a rush to buy any kind of securities that will promise' even a ; nominal rate of m-r teres t. That in .itself is no concern of mine either, but it is not the last stage of the rout! The final stage comes when the depositor finds it necessary, if his money is not to become so much waste paper, to invest it in any kind of community or freehold security offering. Then there is the final soaring of prices and collapse. . Not a very cheerful spectacle this for those who wish to conserve the capitalist structure of society by the dubious methods of monetary reform. If Mr Chapman can give us a plan by which the “debt-free credit” can be short-circuited back to the issuing authority before it reaches the stage where the rot sets in he will make quite a lot of converts amongst the petit bourgeoisie, but he will not make many from amongst the Marxists. I will deal with Mr Chapman’s references to co-operative farming in a further letter.—l am, etc., G. J. Brooker Otekaike, July 19.

TO THE EDITOR Sir.—l would willingly explain to Mr W. Sivertsen if I was able how Major Douglas’s proposals affect an economic or monetary factor. Ido not, however, understand the first question of his letter of the other day. It is not clear to me, for instance, if Mr Sivertsen meant to ask Why does the buying ability of money in terms of goods vary from time to time? ” Or whether he meant to ask “ Since the buying ability of money varies from time to time, how do Major Douglas’s proposals affect this?” Perhaps Mr Sivertsen would explain further the meaning of his questions.—l am, etc., C. H. Chapman.