MONETARY SYSTEM

Otago Daily Times, Issue 26198, 8 July 1946, Page 4

MONETARY SYSTEM

DANGERS OF INFLATION FORERUNNER OF DEPRESSION "At the last meeting I drew attention to the dangerous inflationary effects on our national economy by permitting the private banking system to create, at practically no cost to itself, over £20,000,000 of credit money at a time when our internal economy was already seriously embarrassed by a surplus of money in circulation,” said Mr H. J. Kelliher, managing director of Dominion Breweries, Ltd., at the annual meeting of shareholders in Auckland last week. “Unfortunately, all efforts to induce our legsilators to prevent this private manufacture of credit money . have failed, with the result that even to-day large sums of new credit money are being issued into circulation, making a farce of the stabilisation authorities’ efforts to stem inflation. . ‘ Inflation Prevention

“ Surely, ordinary common sense should make us realise the futility of trying to fix wages, prices and the cost of living while private credit money is being issued indiscriminately and without l'egard to the stability of the internal price level,” he said. “ The creation of the original issue of credit money should be made the sole and supreme prerogative of the State, just as the creation of currency is now the sole prerogative of the State, and should be issued and controlled so as to maintain the stability of the general price level of goods and commodities. This principle should be written into our law and made a statutory directive for those in control of our money system. I know of no other practical means of preventing further inflation and ultimate deflation with its disastrous effects on the welfare of the great majority of the people.” Mr Kelliher said that there were urimistakeable signs throughout the world to-day which should leave no doubt that difficult days were ahead. In the United States conditions prevailed that had all the elements of the 1929 boom followed by the 1930 financial crash, which spread over the entire world. On his recent return from the United States, Lord Woolton had said that conditions in America had made him fearful of another disastrous depression, while the United States Committee for Economic Development itself had issued the warning that “ the present situation has in it all the ingredients of another 1929 boom and collapse.” The plain facts were that the whole of the American economy had been built on the shifting sand of privately created credit money which could be withdrawn even more readily than it was issued. It should be obvious, therefore, that now was the time to put the Dominion’s economic and financial house in order. Now was Ihe time for a constructive and progressive policy, making possible the ordeiffy development of national resources and the reform of a money system which had far too long been the master instead of the servant of national economy. Honest Measure of Value

“I feel very definitely that these highly desirable objectives are not attainable under conditions of alternate booms and depressions,” Mr Kelliher said, “ but that the only, way to attain them is to make money a permanently just and honest measure of value by making the stability of the general price level the guiding principle of monetary control. This, I feel convinced, can be done without hurt or harm to anyone and with great benefit and advantage to the whole of the people. “As to the particular steps to be iaken to meet the pronounced disparity between purchasing power and production in this Dominion consequent on the war-time policy of monetary inflation, I think that the adoption of the principle of maintaining the stability of the internal price level would lead to muoh happier and move lasting results than would the adoption of the Bretton Woods agreement, which would again tie us to gold—a metal so unstable in value that its purchasing power in terms of goods and services varied 100 per cent, between 1929 and 1939.”