EXCHANGE AND FARMER

Taranaki Daily News, 23 November 1932, Page 12

EXCHANGE AND FARMER

EFFECT OF HIGH RATE COSTS WOULD INCREASE. INTERNAL AND EXTERNAL. That a high rate of exchange will not be a blessing to the farmer is shown clearly in an article in the latest issue of the Sydney Bulletin. The general secretary of the United Country Party in New South Wales wrote to The Bulletin as follows: — “The Country Party does not seek a higher exchange rate (with which is advocated a corresponding reduction in the tariff) as a bonus or a gift, but asks for it as mere justice. It desires a rate which will more truly express the difference in the purchasing power of Britain and Australia, and in support of this contention it can quote the views of leading Australian and overseas economists. Can the low exchange advocates do likewise?

“Unless the exchange rate goes up, or unless export prices rise in the near future, primary production must decline in volume with the result (a) that Australia will be compelled to default in her overseas interest payments, and (b) that the excess of imports, about which The Bulletin is concerned, will automatically solve itself. “The Bulletin says that owing to exchange our overseas interest bill has increased by £7,000,000 a year. Is it not time we ceased chasing rainbows in regard to this question of exchange? The calculation is seemingly based on the assumption that we could, should, or might be at par with sterling. But we are not, and it will be many a long day before we return to that position. To say that we are paying £7,000,000 a year more than we would have paid if we were at par gets us nowhere. It would be just as reasonable to complain that because eggs are Is a dozen, whereas they were lOd three months ago, we lose 2d on every dozen we now buy.

“We must face the fact that our currency has ceased to be identical with British currency. Our ‘pound’ is no longer a pound in the sense that the British pound is a pound, and all the arithmetic that Hamblin Smith ever Wrote will not bring back to us that par rate, which is gone but not forgotten.”

“DEPRECIATION OF THE PEOPLE.” The Bulletin replied as follows:— “But who was it said that our £ never can be equal to the British £ again? There is no reason at all why it should not be; there are many reasons why it should be; there are overwhelming reasons—national pride, for one thingwhy we should struggle to make it be. It is not the depreciation of our £ whicn. we need worry about; it is the depreciation of our people. Nothing but that can keep our £ from recovering to par with the British £.

“We are told that the Country Party ‘desires a rate which will more truly express the difference in the purchasing power of Britain and Australia.’ Is this Australia, then, a poor, miserable country where it costs so much to produce things that we must not hope that our £ can buy as much as the £ does in England? Is it such a poor, miserable country that it cannot produce wheat, wool, barley, metals, fruit, vegetables, or meat at the English prices? For there can be only one reason why a £ should purchase less in Australia than in England—that tilings cost more to produce. And that of course is utterly untrue; it does not cost more to produce these things in Australia than in England. On the contrary, most of these things can be produced for less in Australia than in almost any other place in the world.

INFLATED LAND VALUES. “We shall be told, however, that Wages in the secondary industries are higher, and that this makes the cost of primary production high. In most new countries the costs in secondary industries are high; but so far as the primary industries of those countries are concerned there is, or should be, a set-off in the lower value of land. And there we come to what is chiefly the matter with the primary industries of Australia. They have boomed our land values, and to-day they are in consequence groaning under the weight of interest burdens. Very largely this struggle to keep up | the exchange rate is merely a struggle to avoid writing down inflated land values. We are told that ‘leading econo- I mists’ approve of a high exchange rate. This paper has never heard of them. It has, however, heard of certain bankers and their followers and dependants doing so. The South Australian AuditorGeneral, who has been inquiring into the position of farmers in his State, reports that ‘in many cases interest is more than half the per-acre cost of production.’ He investigated 14 cases in the Mid-North. To grow a bushel of wheat on each of the 14 cost for actual working expenses 10s 3d. Interest cost 15s sd. Thus interest on these farms runs into 50 per cent, more than actual working expenses. Is it any wonder that strong influences are at work to hold up or increase the exchange rate and thus to avoid if possible writing down values? “WORST POSSIBLE SERVICE.”

! “All that troubles The Bulletin is that a higher exchange rate would do the 1 primary producer the worst possible ser- ! vice; it would raise his costs at a time 1 when the reduction of costs is the most important thing industrially in the world. Not only must he pay his share of the extra taxation necessary to provide for exchange on interest payments; not only must he pay his share of the extra cost of imports; he must pay higher costs also for all goods produced in Australia and consuming material which otherwise would be exported. For instance, the spelter used in Australia by the galvan-ised-iron and wire manufacturer has to be bought on the basis not of English prices alone but of those prices plus exchange. In other words, materials for local consumption have to be bought in competition with foreign buyers who add exchange to their prices. Thus it is not only on the imported article he buys that the primary producer has to pay exchange; it is on the Australian manufactured product as well. “As far as he carries the matter, the South Australian Auditor-General puts the case with characteristic fairness. ‘The increased prices (due to exchange) prevented many of our primary producers from being ruined,’ he writes. ‘lt must be remembered, however, that an increased exchange rate confers only a temporary benefit to our exports and temporary protection to our manufacturers. The ultimate result will be, roughly, that prices and costs will settle down to a new equilibrium, and the benefit will not then continue.’ “The Bulletin does not advocate, and never has advocated, a low exchange rate. It only seeks a natural rate —a rate which will be governed by the ' flow of exports and imports. If there is not sufficient balance to meet our obligations overseas, the rate would automatically rise; if the balance is too great, the law of supply and demand would see that the rate fell. If our £ is not worth as much as the English £— that is to say, if our cost of production is higher—it will be reflected in the c flow of trade. If costs are high at Bourke Jhtags are not made or produced at*

. Bourke; so if costs are high in Australia r goods will not flow out, and exchange r will automatically rise in order to check t imports, if they are in need of check- > ing. There is no occasion to fix the rate; [ the rate will fix itself. All that the bank > has to do is to see that erratic move- > ments are prevented.”