THE Wairarapa Age MORNING DAILY MONDAY, MARCH 31, 1913. COST OF LIVING.

Wairarapa Age, Volume XXV, Issue 10713, 31 March 1913, Page 4

THE Wairarapa Age MORNING DAILY MONDAY, MARCH 31, 1913. COST OF LIVING.

•One of the imfet perplexing problems of the present houir, ae it a,fleets the multitude, isi rel«tin& to the ®i?st J, k§n^ up in Xew SfeilWd (fetid to endear<Mli' to unravel the problem, but tlie process of elucidation has been exceedingly slow. A valuable contribution to the discussion appears in the December number of the American Review, in iwhich Ml'. Irving Fisher, the American economist, treats the. isubject in an able manner. The question to/which .he seeks to fiind an answer is whether the upward trend of world prices,' now so marked, is likely to continue. The forces wliioh determine the purchasing power of either the dollar or the pound, as the ctuse may ibe, lie groups under two heads. First there is 'the circulation of tihe media or exchange —that is to say, of money and cheques; secondly, there is tihe volume of trade, or the quantities of goods bought and sold. Every increase in the use of money / and cheques tends to inflate prices, wihile every increase in the volume of trade tends to lower prices. Whether the scale of prices expands or contracts depends 011 which is gaining in the perpetual race between the circulation of .nloney and cheques on the one hand, and the volume of trade on the other, if facilities for payment, that is to say, money and cheques, out-, stripy the needs of business, the.'price level; rises, and if the business to be done outstrips the money and cheques to do it with, prices fall. Such things as tariffs, trusts, labour unions, output of gold fronv titer mines and concentration of -population in cities, certainly affect prices, but they do so only through the effects .whidv.vthey, produceupon ■.< title vojaMiig.-of, money and cheques., - The ■ Circulation of., money and circulation of cheques,' may ixtch be again resolved, into two factors, since circulation of money means the volume of money in circulation multiplier] by the velocity with whidb it circulates —that is to say, the number of times it 'is turned over in the course of a year. Tn the .same way, the 'circulation of cheques resolves itself into the Toiume e£ deposits stib-

•to cheque (the total of what i people .coiiimojftly speak of as the money they have ia the bank), multiplied 1)y thie velodty of circulation of these deposits—tlhat is to say, the number of times they are turned over in tihe oaur&e of a year, or, in business teams, the activity of bank accounts. Increased volume, or increased velocity of circulation of money or cheques, tends to inflate prices, while the only factor which acts to restrain the rice of prices is tihe volume of trade. From an examination of these various factors, Mr Fisher comes to the conclusion, that for some tome to come theire ir.uat_.fea. a general upward movement of prices, although temporarily crises or depression may spasmodically lower them far a little while. The principal cafese in recent years for the increase of money in cumulation has been the great output of gold. This output is fairly sure to remain excessive for many years, even if it ceases to increase or to increase at the prewnt rate. The expansion, of backing, especially in backward countries like India, and the quickening of transport, are increasing the velocity with wMch money circulates. Hoarding, once so prevalent in France, aaid still carriedon to considerable lengthy in Oriental countries, is certainly on the decldne. That decline means further additions to the- effeotive use of the ,world's gold—that is to say, a further virtual increase of the currency. The utse of (cheques in place of money, too, is beangi extended with enormous rapidity. This, says Mr Fisiher, is the dominant feature of the present situation, and forms the chief basis of ibkc forecast of a continual rise. Some d»y in the future, when the use of cheques has grown to its full capacity, it is probable that the ratio of cheques to money will thereafter remain fairly confetant, but as long as the present increase in the use of cheques goes on, that alone, apart from increase of output of gold, would have the effect of inflating prices. Statistics indicate that the use of cheques Ss increasing Faster than the deposits against whic'h they are drawn. That means that the activity of the deposits is increasing. On the other ihand, the volume of trade also is expanding, but Mr Fisher can find no evidence, as long ag the present dievelopment of ba-nking continues, of an expansion of the volume of trade outstripping the expansion of the (media of exchange. On the contrary, the fuller occupation of lands and the decrease in the growth of population munst natural! ly. tend to curb'the Irate of increase in the volume of According to what- Mr Fisher considers a very conservative estimate, two par cent, is a fairly safe, mininram estimate for the future average of the annual expansion of the rate of prices.