MONEY & TRADE.

Wairarapa Age, 24 December 1937, Page 4

MONEY & TRADE.

THE EFFECTS OF INFLATION. (To the Editor.) Sir, —Not long ago a great banker and high financier told the world that the cause of the recent fall in the values of cotton and woollen goods was due to the big American companies not buying raw materials. Of course, there is no slump. How could such an unwelcome visitor dare to intrude his ugly face within the sacred precincts of Lombard; Street But isn’t the case of America the case of the whole civilised world? Didn’t the representatives at the World Economic Conference in 1933 break up without arriving at an agreement except the pretty unanimous agreement not to have anything to do with the proposals put before them by the spokesmen from Lombard Street. When they got home, their governments imposed quotas on all, or at any rate, on the most important articles -of import, and instituted drastic regulations of the exchange so that importers can no longer import foreign goods without permission from their governments who make the exporters pay the money they get by selling gdods to other countries into the Reserve Bank to the credit of the Government instead of to themselves. So that the importers have not only got to get leave to import what they want, but they have to ask the Government for the money to pay with as well. The object was to prevent the country from buying too much goods and having a bad balance of payments, which, of course, would end in its currency being ruined. The result is that foreign trade has shrunk to a mere fraction of what It was before the enormous increase ii* paper money authorised by the 1928 Bank Note Act, lowered the value of sterling, and means had to be devised to prevent sterling from going the way some oi the Continental currencies went after the world war. The means employed were to put down the price of all primary produce imported to a level that made it impossible for the primary producing countries to sell at anything but substantial losses, as the following official figures taken from our Year Book will show:—ln 1921 we exported 898,000 cwt. of butter for £11,090,000. In 1933, during the slump, we sent 2,630,000 cwt. of butter Home and only got the same amount as in 1921, though we sent three times as much butter as in that year. It was the same with our wool. In 1929, when the noteprinting had only just begun, we got £15,000,000 for the wool we then exported. In the following two years we exported slightly more wool than in 1929, but they only paid us about £5,000,000 in each of those years—]93o and 1931. In. 1932 they raised the amount for the wool to £7,000,000. But in that year the sterling notes had gone down in value by about 40 per cent, and our pound had gone down 25 per cent, below that, leaving our wool growers with about £4,000,000 value for the same amount of wool as that for which we got £15,000,000 in 1929. It Ynay be seen that these prices bear no relation to the law of supply and demand. But they do bear an inexprablh' relationship to the law that no one', however wealthy, can produce goods for less than its costs to produce them. And' the more prices go up for manufactured goods the less goods there will be sold, for no one will give more for an article than he thinks it is worth his while to pay. That is the reason why the manufacturers have had to dismiss hands rather than be caught with huge stocks of unsaleable goods that no one wants; or if they want them, they have not the money to buy them. That is the invariable end to the reckless issue of inconvertible paper.—Your etc., H. C. THOMSEN. Masterton, December"2l.