HOW BOOMS ORIGINATE

Stratford Evening Post, Volume II, Issue 239, 10 May 1933, Page 6

HOW BOOMS ORIGINATE

Stable Prices a Delusion Mr. H, D. Black, Sydney, lecturer in economics, in an address to the University League of Nations Union, strongly attacked currency “reformists,” whoi aimed at preventing falls in prices by artificial manipulation of the currency. The theory that “stable prices meant stable business,” he said, was a delusion that had its origin in America. “To think that the banks can pull us out of our present depression, he added, “is like thinking we can lift ourselves by our own bootstraps.” With the normal growth of efficiency in production, Mr. Black said, there w'as a normal tendency for prices to fall. If this tendency was offset by inflating the currency, abnormal profits were made and a boom started that must inevitably produce a depression, for the additional money in circulation caused the rate of interest to fall, and thus encouraged more borrowing for constructional industries. This extra money eventually reached the wage-earners, and this extra purchasing power made available raised prices yet higher. Consequently a vicious spiral was started, which was stopped only when costs of production rose as high as prices. When this happened, producers lost their profits. Production was curtailed, borrowing slackened, and there was a rush to sell, which sent prices falling. These effects were cumulative and profits and prices fell lower and lower as the boom inevitably gave wfay to a depression.

The traditional! policy in these circumstances, a : dded the speaker, was for the banks to lower the rate of interest. This had been done; and; consequently the depression coultd now be said to be lifting. MoTe than that the banks could nmt do.