Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, TUESDAY, NOV. 25, 1930. PERILS OF INFLATION

Poverty Bay Herald, Volume LV, Issue 17425, 25 November 1930, Page 6

Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, TUESDAY, NOV. 25, 1930. PERILS OF INFLATION

In tho ninny discussions which Irani time to time arise concerning IHe financial situation there frequently occurs the suggestion that the corrective lies in the hands of the Government. or some central banking authority. Nationalisation of the banks is the crude remedy of the Socialists, “releasing of credit” being another term arising from the same quarter. During the course ot the recent electoral campaign in New South Wales Mr. Lang and his colleagues repeatedly declared that the Commonwealth’s position was not as serious as- had been represented; that Australia had plenty of assets, and all that was required was a releasing of credit. One of Ihe Federal Ministers, supporting Mr. Lang’s promises of unlimited millions, declared that “the Commonwealth Hank was not carrying out its duty to the country; it should be inflating the currency by the million.” It is no new thing lor politicians to advocate resort to the printing press. Years ago New Zealand Parliament hud us u standing dish proposals by an enthusiast l'oi a State note issue, and probably if the present depression continues a good deal more will be heard from those who regard it as the simplest thing for a State t<> escape its economic dilliciilties bv the printing of paper mimev or the isMie oi bonds. There have been suggestions by extremists in Australia that interest rates should be compulsorily reduced, that war debts be repudiated, and that central banks take steps to stabilise the commodities markets. Sindi mischievous, meddlesome proposals have doubtless done much to cause investors to light shy ot Australian securities. The way to restoration ot confidence and rehabilitation of Australia's credit is not through panaceas of that kind, but only by economy and retrenchment. Note inflation, it has been pointed out, is the meanest of false remedies and one that has wrought great havoc in other countries. For those who have deposited their savings in Ihc banks, insurance companies, and other investment institutions it presents a verv real peril. “Lenin held that to debauch the currency was the surest method of overturning the existing economic system,” writes Professor Walker, Dean of the Faculty of Economics at Sydney 1 diversity, “and the events of the post-war venrs amply illustrate his thesis. Oiilv the co-operative efforts of the Allies and the League of Nations prevented the complete collapse of Austria, Hungary, and Germany, following the release of unlimited credits for trade and Government expenditure.” The results of the releasing of credit, a most taking phrase, are not matters of theory or of speculation, but of bitter experience of economic history. The cflect of inflation, however caused, is inevitable a soaring of commodity prices. Pp would go the cost of living, the cost of production, and cost oi government. Business would spurt for awhile, but it would not be long before more inflation would be necessary. “So tin* vicious spiral would continue,” writes Professor Walker,

“ns it did in tho countries of 1! it rope. During the period of rapid ii.llnlimi costs were risin<f so fast in Austria that the expenditure voted |,y Parliament was exceeded in the first months of the Budgetary year, so that for the ensuing eleven months there was only the delieit to live on. 'l'his type of public linance is simplicity itself in administration. The Soviet’s Financial Commission made an estimate e\cry three months of the delieit,. and the required number id' notes were printed. In Austria the mat I or was adjusted in a similar manner, - but once eveiv 'l’lie only administrative difficulty was to print notes fast enough. Russia had to oive orders to Swedish firms, d'he (ierman Government in was seriously embarrassed by a strike at tlie note printing, works, and declared such strikes ,illegal. But the political f'neilitv of inflation was the cause of disastrous', social consequences. In

Austyiq tie cost of living.rose so rapidly than in 19-2 over 8000 kronen were required to buy goods that cost 37 kronen in 191 S, and but one'krone in .1914! Imagine what this meant to people who had saved something from their earnings. If this happened in Australia, for instance, it would mean that the real value in goods of a bank deposit of £2OOO might be reduced to less than £1 in four years. Of course, in Germany the inflation was still more violent, and when in 1923 the restoration of stability was accomplished it was found that the mark had dropped to one thousand millionth of its pre-war value. Shocking conditions prevailed. People who had never before known the meaning of want were plunged into poverty. Everyone seemed to lose spirit, broken by a year of ruinous experience. Inflation not only disorganises trade, but irritates class antagonism. Lenin was right. By this meanest form of taxation Governments but stimulate the class war and undermine I lie foundations of the economic life and political unity of the people.”