CENTRAL BANKS’ VIEWS

Taranaki Daily News, 20 June 1931, Page 5

CENTRAL BANKS’ VIEWS

CREDIT INJECTION THEORY FALLING PRICES A SYMPTOM. !. \ • ENGLISH AUTHORITIES’ VIEWS An important statement of the views held by central banking authorities was made last month, in an address in London to the English-speaking Union, by Professor O. M. W. Sprague, economic adviser to’ the Bank of England, and formerly professor of bankingd an finance at the University of Harvard. / He said there was no agreement about the causes of the depression and certainly no agreement upon the remedy. There was one school of thinkers, who exhibited a great variety among themselves, that might be styled the monetary school. The rest might be grouped under the heading of industrial, or economic, equilibrium school. The pre- 1 scription of the monetary doctors was I very satisfactory from the point of view, ; of the patient, inasmuch as the remedies ! suggested were painless. The monetary doctors prescribed that the central banks, such as the Bank of England, the Reserve Bank of New York and the Bank of France, should get together and agree to flood the market with a great amount of additional credit j’’ and currency. They held that in that event prices would cease to fall and a large amount of additional investment would take place and people would be set to work. The central banks could do that if they were convinced that it was advisable. There was no obstacle in the way on the grounds of an insuffii ciency of gold. * Unhappily, however, those who were * in charge of those three institutions were not convinced that that policy would serve and meet the exigencies of the present situation. It was not be--cause of any difficulty of securing agreement among the three banks, but because none of them harboured the belief that it was the appropriate remedy. Curiously enough, all the responsible people connected with the great central banks of the world held the industrial equilibrium theory as the true explana- . tion of the present difficulty. It was observed, for example, that although prices induced some peculiar and specific consequences—those connected with the central banks were disposed to think that the fall in prices was a symptom in the main and not a thing that they could attack directly. It was, of course, true that if and when prices did advance, more credit and currency would be employed, but they did not believe that simply by injecting more currency and credit into the situation they could certainly bring about that desirable rise in prices and activity of business. The bankers observed that, although prices had tended downward, there had been a very uneven movement of prices. Some prices had fallen very sharply indeed, particularly in the basic industries and agriculture, where there was evidence of a decided over-production on a considerable range of products. Another group of commodities was observed where prices had not fallen so much and these were characterised by a contraction of production. The great thing was how to get an | equilibrium, because if they could get, that there was no difficulty about an upward movement of prices. In the; judgment of the bankers, they would not get satisfactory borrowers in large and increasing numbers for increasing b amounts until they could, somehow or another, get a better equilibrium of prices and a better distribution of and capital than we now had. Their' view was that manufactured costs and. prices should come down to an equilibrium level with agricultural prices, rather than that we should try to get agricultural prices up to an equilibrium f . level with the higher prices of manufactured goods.