THE DANGER OF INFLATION

Otago Daily Times, Issue 25036, 2 October 1942, Page 6

THE DANGER OF INFLATION

Sir, —Seeing that “ S.” thinks that the danger of inflation is not well founded it will be as well to examine the financial position. The first sign of an over-issue of money is seen in a fall in the exchange value or the purchasing power. This is caused through rising prices. The . se 9 ont L aa 4 most important is the deterioration of confidence in the value of currency. Both these signs have been most pronounced for a considerable time, and are especially so at the present moment. So far as the, upward climb of money and prices is concerned, the climb commenced immediately the Government forced into circulation new purchasing power before new wealth had been produced. Ihe truth of this statement is easily proved by a simple example. Let us assume that all the wealth to be exchanged .in New Zealand during the next week is equal to £26.000,000 at the present values. Now assume that the number ox pounds is doubled to £52,000,000 and wealth is not increased also. It will be obvious that the price value of wealth has been increased by 100 per cent, while the purchasing power or value of the £ will have been reduced by one-half, or 50 per cent. From the above example it is easily seen that the climb in money and prices commences immediately money is forced into circulation before wealth is brought into being. The speed of the climb is proportionate to the increase in the volume forced into circulation. I trust “ S.” will note this point because it is of great importance if we are to get a sound understanding of the cause of our trouble and, may I say, the real cause of the world war? The second point I wish to emphasise refers to the term “ wealth ” used in the above illustration—things that are owned by human beings, for after all it is things that are owned that mostly create economic problems. From the above example it will be seen that to increase money before wealth forces down the value of money and creates a scramble cr panic to get wealth. It must be obvious, then, that a sound policy for a Government in a country like New Zealand which has an inflated currency would be to legislate to bring into being an increase in wealth and thus increase the purchasing power of money already in circulation. If the Government endeavoured to do this, instead of panics, strikes and poverty and dissatisfied people, we should have a contented people, for no sane human being would object to his social conditions being improved and the value of his money increased in terms of goods and services.—l am, etc., C. M. Moss. Dunedin, September 29. [Abridged.—Space conditions will not permit of our acceptance of long letters—Ed.. O.D.T.]