Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, SATURDAY, SEPT. 26, 1936. PRICES AND CURRENCIES

Poverty Bay Herald, Volume LXIII, Issue 19130, 26 September 1936, Page 4

Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, SATURDAY, SEPT. 26, 1936. PRICES AND CURRENCIES

Committees of the League of Nations have again drawn attention to the serious effects on world economics of the existing disparity between prices and currencies, and in one report it is stated that this position, leading as it'does to a lack of equilibrium in exchanges, is the greatest obstacle in the way of world-wide recovery. But although the problem is stated so simply as that, the committee, apparently, ,is not in a position to recommend any remedy; on Ihe contrary, it states that a world conference at this stage could not prove helpful. The same report emphasises that no currency adjustment can prove effective unless it is accompanied by a relaxation leading to the ultimate abolition of exceptional import restrictions. Put in simple language, the finding of international experts is that the present economic difficulties are due to the manifold barriers to trade. It follows, therefore, that recovery can only be brought about by the removal, or at least the reduction, of these barriers, and acceptance of this view places on each country .a responsibility to do everything within its power to facilitate the freer exchange of goods. Most Governments in recent years, however, have adopted policies having a reverse effect, and have been actuated by a desire to produce immediate results in the <Ji i ectionf of protecting their owm peoples. Economic nationalism, at the best, can only be temporarily beneficial, for obviously real and lasting prosperity can never bo obtained by restricting the capacity of either individuals or nations to exchange surplus goods between oue n not her.

Tariffs and currency manipulation, while both designed for similar purposes, actually have opposite and conflicting effects. The object of currency authorities is to keep the value of currencies at a level which will enable t'he export industries to compete in M« world's markets; in other words to protect the industries concerned. Tariffs are designed to protect another class of industry by preventing the importation of goods

at prices below those at -which they can.be produced on the local market. It follows, therefore, that the more an exporting- country depreciates its currency, the more will the importing one require to increase, its tariffs if the .same protection is to be afforded, and it is this fact which i.s to blame for the vicious circle from which there is no apparent escape. The experience of New Zealand, which is by no means the worst offender, illustrates the position. The exchange rate was advanced arbitrarily in order to increase the returns to primary producers—to facilitate competition in the world markets. Other countries, in order to protect their producers, were compelled to increase their tariffs in order to shut out New Zealand produce. The cumulative effects of this and similar movements was to concentrate the exports in which we are interested on the British market until even there the Dominion was threatened with tariff restrictions. ' The next step in the cycle was that other countries, in order to compete with New Zealand, depreciated their curreneie.l- - further. In the ordinary course of events, this would mean—■and, indeed, in many cases did moan—that tariffs had to be still further raised .in order to protect domestic industries. On the one hand, exchange restrictions havo meant producing goods nt high cost and selling them at low prices, and, on the other, tariff barriers—and high exchange rates —have meant paying for goods at, prices fai in excess of the cost of producing them.

The evil results of this policy are apparent in every direction. New Zealand, for example, is anxious to sell butter at a shilling a pound, on a sterling basis, yet in some countries the consumers would count themselves fortunate to buy it, on the same basis, at double the price. Articles : which British manufacturers are prepared to dispose of for one pound are wanted in New Zealand but cannot be purchased for two pounds. And so the whole insane business goes on. the difference between cost and sell ing prices being absorbed by depreciated currency and tariffs. The difficulty is that the benefits of these protective measures are apparent, bui their many disadvantages are obscure The fanner, for instance, sees readily enongh that he is obtaining an exchange premium of 25 per cent on his produce, but fails to realise that he i.s paying a premium of 100 per cent and more on many of his purchasers. The manufacturer know r s, of course, that a high tariff is protecting his business, but it is not so clear to him that the same factor is preventing an exchange of goods with other countries and thus reducing the purchasing power of his potential customers What applies in a comparatively narrow circle applies equally in the universal sphere; real prosperity depends upon the maximum possible freedom in the exchange of goods, yet the tendency for some years lias been to curb and cramp trade in every direction. The remedy is more easily seen than applied, for expedients, once adopted, are not easily dispensed with; rather is there a disposition to extend the use of them. Some progress can be made, however, by negotiation between groups of countries who are prepared to take a broad view and co-operate in their mutual interests, and it is a reasonable assumption that once the. initiative tttaken the lead will be followed bj the rest of the world.