GOLD AND PRICES.

Southland Times, Issue 21273, 19 December 1930, Page 3

GOLD AND PRICES.

To the Editor. Sir, —In the discussion of the question of inflation of the currency one fact is commonly overlooked, and that is that at the present time the value of gold is being “inflated,”, and that the value of all other commodities is being so seriously "deflated” that unless some change occurs very soon the whole world, except Russia, will be faced with a complete economic breakdown. Russia alone is unaffected by the present collapse of commodity prices because, having repudiated the Tsarist debts and having no credit, she merely exchanges the commodities she produces in excess for those she requires to import. It is unimportant to her that the price of the wheat she exports is so low, because the price of the wool, rubber, tin, cotton and other raw materials she requires is correspondingly low. Great Britain and the British Dominions, however, are in a very different position. Britain has a debt of seven and a-half thousand million, and the total gold available for monetary purposes in the whole world is a little over two thousand millions. So that Britain’s national debt is about three and a-half times as great as the whole of the world’s gold supply. The annual charge on the British taxpayer for the service of this debt is 355 millions. This charge has to be paid either in gold or in goods to an equivalent value. Sixty per cent, of the world’s gold being now in the vaults of the banks in America and France, the balance of gold available in the whole world would only pay Britain’s interest bill for two years. It is obvious, therefore, that the vast bulk of this interest payment must be obtained from funds derived from the sale of goods. With prices slumping as they are it is obvious that the burden of debt to the British taxpayer must be greatly increased. To come nearer home, New Zealand has, including national debt, local bodies debts and mortgages on land, a total indebtedness of about 600 millions. Taking interest at 5} per cent, this would require a sum of 33 millions per annum. If prices are stabilized on a pre-war level can these payments be met ? Let us see. In 1925 the total value of our exports was 54 millions and their value, based on the prices .ruling in 1900, was £23,879,288. In 1926 (a year of fairly low prices) the value of exports was 44 millions, and their value based on prices ruling in 1900 was £23,772,831. I have not available the figures for the last two or three years, and I know there has been a considerable increase in the volume of production, but even so the total value of our exports based on the values ruling in 1900 would fall far short of the 30 millions required to pay interest on our debts. I know that a large part of the debt is owned in New Zealand, and that exports, are not necessary to pay the local interest. Local prices, however, fall in sympathy with export prices and I have simply given the figures to show what a serious position we are in. If no debts existed the position could be easily adjusted by an all-round reduction in costs, but while interest has to be paid on debts incurred in an “inflated” currency we simply cannot carry on if the present “deflation” continues. Take the position of the dairy farmer. A year ago he was getting 1/5 a lb. for butterfat and in some cases bought land or incurred other liabilities based on a butterfat value of round about that price. To-day butterfat is lOd per lb. and will possibly go lower next month, so that the dairy farmer has now to give fifty per cent, more butterfat to discharge his obligations than he did a year ago. We have heard plenty of the evils of inflation, but deflation is probably even worse in its effects, because while inflation of the currency strikes hardest at the non-producer, the pensioner and those living on the interest on investments, deflation hits the producer and the energetic business man who is using his credit to the utmost. What we really require is a stabilized currency and it used, to be true that gold supplied the necesKary-

stability. Now that gold can be “cornered” like any other commodity this virtue of the gold standard has disappeared and we shall have to find some other means of stabilizing the currency.—l am, etc., C. MORGAN WILLIAMS. Kaiapoi,' December 15, 1930.